Rising Pain: Average Gas Prices Hit $4

June 8, 2008— -- Across the nation this weekend, thousands of gas stations that had not already done so raised their prices over the $4 a gallon mark.

A gallon of unleaded gas now costs more than a Starbuck's cappuccino and is closing in on the cost of a gallon of milk.

After arriving at a New Jersey gas station near the Holland Tunnel entrance to New York City, Daniella Olivera was flabbergasted to find prices had jumped 10 cents overnight.

"I think this is crazy," said Olivera, who said she was considering selling her car. "It's unbelievable."

There's more to come, said Mark Zandi, chief economist with Moody's Economy.com. He expects average gas prices -- pegged at $4 a gallon this weekend by the Automobile Association of America -- to hit $4.10 or $4.15 by Friday and $4.50 by July 4.

"Gas prices are going to head straight up, every day a few more pennies," Zandi said.

Economists blame surging global demand, a weak dollar and investor speculation in the hot energy markets. And rising gas prices aren't the only reason economists are beginning to use the R-word. The latest cover of Newsweek says it all: "Recession."

On Friday the battered economy saw a triple whammy of bad news: The highest jump ever in the price of oil, a dramatic rise in unemployment and a 400-point drop in the Dow Jones Industrial Average, not to mention continuing turmoil in the housing market.

"This market has reached a new 'Twilight Zone' period where it's out of hand," said economist Peter Beutel of Cameron Hanover. "I feel like I woke up and found Godzilla in my backyard."

That uncertainty has had immediate effects: on airlines, which are cutting flights and raising fees; and on industries that use oil to make their products. Goodyear Tire & Rubber has raised prices 15 percent since February and Dow Chemical recently raised prices 20 percent on its bottles and packaging products.

Japanese Energy Minister Akira Amari echoed those fears at a meeting of the Group of Eight industrialized nations in Japan today, saying gas prices "may well cause a recession in the global economy."