Not-so-happy holidays ahead at the gas pump

There's one place holiday shoppers probably won't find a bargain this year: At the gas pump.

The Federal Reserve is taking steps to stimulate the U.S. economy, but those moves are also helping to push oil prices near their high for the year. That increase will eventually translate into higher gas prices.

The national average for a gallon of unleaded gasoline was $2.806 Thursday, according to AAA, Wright Express and Oil Price Information Service. That's about 7 cents more than a month ago and 12 cents above a year ago. It will probably keep rising. Some analysts think the price could be a nickel to a dime more by Thanksgiving.

The Fed plans to buy about $75 billion in bonds per month through the middle of next year, effectively decreasing already low interest rates. That might boost lending but the influx of dollars weakens the value of the U.S currency.

Oil is priced in dollars and becomes cheaper for holders of foreign currency when the dollar falls. And when the dollar weakens, investors would rather hold hard assets like oil and other commodities because that protects them from more weakening and inflation.

The dollar has been getting weaker against other currencies for weeks, since the Fed signaled its stimulus efforts in late August. Oil rose from about $72 in early September to above $86, while regular gasoline jumped from an average of $2.68 per gallon to almost $2.81.

Besides higher prices at the pump, consumers will also pay more for basics like food.

"Effectively, what the Fed did yesterday was impose a new tax on consumers," Cameron Hanover analyst Peter Beutel said.

Oil prices hit a high for the year of $87.15 a barrel in early May, when gas pump prices were around $2.90 a gallon. They're heading back there again.

For every penny the price at the pump increases, it costs consumers an additional $4 million, Beutel said. If the price rises a dime, it means consumers pay $40 million more each day that 10-cent hike is in place.

At the current national average of $2.80 per gallon, a typical motorist using about 50 gallons of fuel per month will spend about $140.

"Gasoline prices are almost probably, in my opinion, double what they ought to be," said Beutel. "So the question is ... those people who have jobs, how much longer can they afford to pay ever-higher prices at the pump."

Higher gas prices already have prompted some consumers to cut back on discretionary weekend driving, said John Gamel, director of economic analysis for MasterCard Advisors SpendingPulse.

It's similar to the trend in 2008 when drivers reduced travel as gas prices rose above $3.15 a gallon and then spiked at over $4 a gallon.

Diane Swonk, chief economist at Mesirow Financial, thinks higher pump prices mean some people will redirect some spending as well. "They may cut back on discretionary spending like entertainment but not necessarily gift purchases. They may skip eating out, seeing movies or hosting a holiday party."

Typically, about 10 percent to 11 percent of all retail spending in the winter goes to gasoline. That increases to 15 to 16 percent during the summer when more drivers take to the road, said Kamalesh Rao, director of economic research for MasterCard Advisors SpendingPulse.

In Nymex trading in December contracts on Thursday, Benchmark crude rose $1.80 to settle at $86.49 a barrel. Heating oil added 4.52 cents to settle at $2.3731 a gallon, gasoline gained 3.91 cents to settle at $2.1771 a gallon and natural gas added 2 cents to settle at $3.856 per 1,000 cubic feet.

In London, Brent crude climbed by $1.62 to settle at $88 a barrel on the ICE Futures exchange


Associated Press Energy Writer Jonathan Fahey in New York contributed to this report.