Consumers feel pinch of high gasoline prices

A resident looks at the price of gasoline as she fuels up his car at a gas station in Miami's South Beach, Florida April 23, 2008.

NEW YORK (Reuters) - U.S. motorists are again facing summer pain at the pump as rising crude oil prices drive up the cost of gasoline, forcing spending cuts elsewhere and threatening the fragile economic recovery.

Average U.S. gasoline prices hit $2.63 a gallon on Wednesday, up about 9 percent since the Memorial Day weekend when the summer driving season kicked off, according to data from the travel and auto group AAA.

"It's putting a hole in my pocket," said Javier Garcia of Bronx, New York, who noted that the cost of driving his sports utility vehicle has jumped in recent months.

"Every two days, I've got to spend $30 and that doesn't fill it up," he said. With a newborn baby to care for, Garcia, 43, said gasoline prices are eating into his food budget.

The jump in fuel prices comes on the back of a 50 percent spike in crude prices since the start of the year. Crude oil closed above $70 a barrel on Tuesday for the first time since November.

In May, AAA said gasoline prices would not exceed $2.50 a gallon this summer, but the spike in crude prices prompted it to revise its forecast to $2.75 a gallon.

The U.S. Energy Information Administration, which forecast an average summer gasoline price of $2.21 in mid-May, said Tuesday it now expects U.S. gasoline prices to continue rising to a monthly average high near $2.70 a gallon in July.

And although the forecasted highs are still a far cry from last summer's prices which exceeded $4 a gallon, some experts warn that higher prices could stifle the economic recovery.

"It doesn't really fit in with this idea that the economy is somehow going to recover sometime soon and that consumers are going to be happy. I don't think consumers are going to be happy paying $3 at the pump," said Addison Armstrong, director of market research at Tradition Energy, who predicted that prices will climb to $2.75 a gallon this summer.

With an economy that's highly dependent on consumer spending, higher gasoline prices pose a threat to broader economic recovery, said Troy Green, a spokesman for AAA.

"People are still going to drive, but they are going to spend less in other areas," Green said.

Higher prices may even cut into demand which has begun to show signs of rising against levels seen last year when pump prices over $4 a barrel lowered consumption.

"The higher these prices go, the more we'll choke off what little demand recovery we are seeing," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

At the Liberty gas station in Ambler, Pennsylvania, where regular unleaded gasoline was selling for $2.59 a gallon on Wednesday morning, attorney Jon Young said higher gas prices have forced him to think harder about using his car when he doesn't have to.

"There's no idle driving around anymore," said Young, 51, as he spent $42 to fill up his 1998 Ford Explorer which gets about 18 miles per gallon. The latest hike in gas prices has cost him about an extra $40 a week which he said is a "big deal" because he drives about 200 miles a week for work.

Linda Martini is a 52-year-old teacher who lives in a suburb of Detroit, Michigan, where gasoline costs $2.97 a gallon. She is already trying to combine trips and ride her bicycle where she can in addition to cutting back on vacations and her food and leisure budgets so she can afford to fill up her Pontiac Vibe.

"Hopefully, this is short-lived," Martini said, adding that she thinks the fluctuating gasoline prices make the case for developing alternatives to petroleum fuels.

"I think as a country we have to find alternatives."

(Additional reporting by Jon Hurdle in Philadelphia, Braden Reddall in San Francisco, and Tom Doggett in Washington; editing by Jim Marshall)