Killer Combo of High Gas, Food Prices at Key Tipping Point

04-21-2011 • CNBC.com

The combination of rising gasoline prices and the steepest increase in the cost of food in a generation is threatening to push the US economy into a recession, according to Craig Johnson, president of Customer Growth Partners. Gas station in San Francisco. Johnson looks at the percentage of income consumers are spending on gasoline and food as a way of gauging how consumers will fare when energy prices spike. With gas prices now standing at about $3.90 a gallon, energy costs have now passed 6 percent of spending—a level that Johnson says is a "tipping point" for consumers. "Energy is not quite as essential as food and water, but is a necessity in today's economy, and when gasoline costs more than bottled water—like now—then it takes a huge bite out of disposable spending," he said, in a research note. Of the six US recessions since 1970, all but the "9-11 year 2001 recession" have been linked to—of not triggered by—energy prices that crossed the 6 percent of personal consumption expenditures, he said.