Rising gas prices may slow economic recovery

With oil already up 20 percent this year, economists are asking how long it will take before it puts the breaks on the recovery.

If you're looking for the cheapest gas in the country, you'll have to drive all the way to Wyoming, the only state where gas still averages under $3.50 a gallon.

The national average, now $3.79 per gallon, is just 32 cents away from the all-time high set in July 2008. Prices have been driven up by the global economic recovery, record speculation and unrest in the Middle East.

John Kingston of Platt's says supplies have been strained by the civil war in Libya.

"You've lost 1.3 million barrels a day of the world's best crude in Libya. You have to account for that somewhere," Kingston said.

As oil prices have climbed back to $110 a barrel, it poses a growing threat to the economy. Ellen Zentner, an economist with the Bank of Tokyo - Mitsubishi, said high gas prices could almost certainly take some of the momentum of the recent economic recovery.

"Economists have already marked down some of their growth forecasts for the first quarter of consumer spending," Zentner said.

Zentner says gas and food inflation are eroding Americans' paychecks.

"If we adjust wages for inflation, they not only declined month to month in March, they're declining on a year-over-year basis," Zentner said.

The American consumer drives two-thirds of the economy. So far, spending at retail stores is holding up. It rose again more than 2 percent in March, but spending on gasoline has been falling, down 3.6 percent in the past week, its fifth-straight weekly decline.

Kingston said he believes this spending decrease is a direct reaction to a rise in prices. A team of CBS News correspondents found other parts of the economy feeling the impact.

CBS News correspondent Dean Reynolds reports that rising gas prices are being felt in Chicago's grocery stores.

"Food prices are totally getting out of line," said shopper Ann Bakopoulos.

Higher fuel prices are driving up the cost of food production.

"When we put our tractors in the field, there's over 500 gallons a day that we're using of diesel and with that new price increase, it's just huge to us," said farmer Alan Kemper.

Kemper is spending $1.46 more per gallon for diesel, $50,000 more to fuel his tractors than a year ago. Oil-based fertilizer, herbicides and seeds will add to that total. Prices are up in grocery stores and on the farm, too.

CBS News correspondent Bill Whitaker reports that in Burbank, Calif., higher gas prices are cutting into the profits of local florist Kimberly Williams.

Williams has eight employees making arrangements, running up to 40 deliveries a day. Now with her fuel bill up as much as $400 more per month, she's having to find ways to trim back her expenses: turning down the lights, cutting overtime and consolidating deliveries. She even bought cheaper insurance.

"If it's a late delivery, I'll run it in my own car on my way home, just to save a little time and money on that end," Williams said.

With gas prices rising, she's hoping she can cut enough to keep her business growing.

CBS News correspondent Mark Strassman reports that, in Atlanta, Nancy's Pizza has seen one-third of the usual lunch rush sliced away by rising gas prices.

Instead of 80 lunch plates, Nancy's now serves 50. That represents a loss of $300 a day, or $1,500 a week.

"Six months ago, our dining room would be full right now. We'll just have to take the hit," said manager Juan Burson.

Caesar Davis lunched there for the first time in three months. He used to stop in every other week.

"You have to pack a lunch because it is expensive to have that kind of gas prices," Davis said.

Atlanta's gas prices have surged 95 cents per gallon in six months.

On Monday, the International Monetary Fund hiked its forecast for oil prices by 20 percent to an average of $107 a barrel this year and $108 next year but said it should have only a "mild effect" on the global economy.

Even though America has a 24-day supply of gasoline in the country, there are other factors driving up the cost at the pump. Increasingly, oil has become an investment, and uncertainty brought in inflation because of speculation on the part of investors.