Why High Gas Price Effects May Be Different This Time - CNBC

Kelsea Hanrahan spends a lot of time on the road.

The Long island, N.Y., consultant gets reimbursed 50 cents a mile for gas from her job. That used to net her an extra $50 a week in pocket change.

"I was pocketing money because my car is fuel-efficient, but now most of it's just going to the extra gas price," she says.

Brian Park doesn't have that luxury.

The Fort Lee, N.J., lawyer and his wife cut back on their driving and recently gave up their gym memberships to offset the extra $60 a month they're paying in gas costs.

"When I hear from the news that the gas price will skyrocket above $4 per gallon it freaks me out," Park confided as he filled up his Honda.

With the average price of regular gasoline now hovering near $3.80 a gallon nationally, prices at the pump are nearly a dollar higher than a year ago.

For the average American who drives about about 15,000 miles a year and uses roughly 750 gallons of gas annually, that dollar increase per gallon has eaten about a $750 hole into the household budget per car.

Americans have seen prices this high at the pump before, during the spike in 2008. Analysts expect to see the same kind of individual spending cutbacks we saw then.

"In 2008 we spent 12 months with gas above $3," and that resulted in notable changes in consumer spending choices, says David Portalatin of NPD Group. "Nearly half reduced their gas consumption by consolidated shopping trips, 29 percent cancelled or modified vacations, 25 percent found alternatives to driving. The more sustained price spike, the greater the impact."

Perhaps because consumers have traveled this road before, some analysts say this time around the impact may not be as pronounced across middle-class and higher-income consumers as it was in 2008.

Retail analyst Rich Hastings says retailers like Macy's [M 24.68 -0.03 (-0.12%) ], Costco [COST 76.41 -0.04 (-0.05%) ] and Bed Bath and Beyond [BBBY 54.52 0.46 (+0.85%) ] have done well in recent months, because their consumers tend to be more affluent. Hastings sees a battle royale looming for lower-end consumers between Wal-Mart [WMT 53.63 0.11 (+0.21%) ] and the dollar stores.

In 2008, price-conscious consumers traded down from the retailing giant to the dollar stores, and he says they've not really come back. This week Wal-Mart announced it would match its competitors' low-prices.

Hastings believes this time around the nation's largest retailer will be very aggressive to fight for market share.

"If they want to get really nasty they could keep those prices even lower and force other retailers to go even lower and force other retailers to go through margin compression, and mark-down deduction expenses," he says.

For online and catalog retailers like Amazon, [AMZN 182.29 1.81 (+1%) ] Overstock.com [OSTK 14.51 0.36 (+2.54%) ] and LL Bean that often entice customers with flat-rate and free shipping, higher freight costs could also pose a threat to margins, says James Matthews, a business parcel shipment consultant with Source Consulting.

"The trickle down can be considerable," Matthews says. "A lot more people are buying online. Companies can only absorb that charge for so long without having to increase the prices somewhere."

Yet, as oil futures have climbed back above $100 a barrel, this time around shipping fuel surcharges at FedEx [FDX 93.43 -0.65 (-0.69%) ] and UPS [UPS 72.61 -0.62 (-0.85%) ] are not as steep as they were when oil prices were at the same level in 2008.

In April three years ago air freight surcharges were close to 20 percent ,according to Source Consulting Research. This month, the air surcharge is hovering at around 11 percent.

"In recent years, when FedEx increased shipping rates, it also partially offset the increase by adjusting the threshold at which the fuel surcharge begins," says Jess Bunn of FedEx investor relations.

This time around, already accustomed to paying higher prices, customers may be feeling a little less sticker shock and be better prepared to make alternatives.

That expectation prices will rise is what really worries economists such as Nicolas Colas of ConvergEx.

While the Fed has said it believes the inflationary impact of the energy price is transitory, Colas says they have to be concerned that inflation psychology may become more fixed.

"The Fed knows they have to worry about inflationary expectations," Colas says. "Once you lose control of that psychology as a central bank you're in a tough spot." Colas thinks people are close to that point.

Consultant Kelsea Hanrahan certainly is. She's bracing for gas to top $4 a gallon this summer.

"I'm expecting it," she says. "That's where it seems to be heading."