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Rising energy costs hit family budgets

But hikes, while painful, have not derailed recovery

Angela Sullivan scoots around in a Ford Escort to run errands and sets the thermostat in her home each night at 66 degrees. In other words, she's hardly a fuel hog.

But with gasoline near $2 a gallon and home heating costs on the rise, the 29-year-old resident of Fredericksburg, Va., says there's less money for food, clothing, and entertainment -- which nowadays means a trip to Blockbuster, not the local movie theater.

"We've been getting by, but it's hard," said Sullivan, who hasn't worked in three years and whose husband is a truck driver.

Just as $54-a-barrel oil chips away at economic growth, it also cuts into the budgets of many small businesses and families, particularly those with modest or fixed incomes.

Americans have already spent about $26 billion more on gasoline in the first nine months of the year than they did over the same period in 2003, a 16 percent increase. And they can expect to pay $14 billion more -- at the very least -- than they did last year for home heating costs, another double-digit percentage increase, according to recent estimates from the Energy Department.

Yet while there is growing evidence that higher energy prices have contributed to a recent dip in consumer confidence and spending, they have not risen enough -- at least not yet -- to derail the country's financial recovery.

Oil prices would have to rise to $80 a barrel to match the 1981 peak, on an inflation-adjusted basis, while gasoline would have to climb to about $3 a gallon.

Jim Logan, 57, part owner of the River Lake True Value in Minneapolis, said he has been able to offset his own rising energy costs by charging more for the hardware he sells. "People notice it, but not like they notice it at the gas station," he said.

That kind of pricing power is showing up elsewhere in the economy, but with a few exceptions, today's soaring energy costs have not triggered a surge in inflation. The government reported yesterday that wholesale prices rose only 0.1 percent in September.

That's in part because the combination of better technology, planned conservation, and the shrinking of the industrial sector has made America considerably more energy-efficient than it was in the 1970s.

Also yesterday, Federal Reserve chairman Alan Greenspan said the rise in energy prices is likely to have far less of an economic impact than the oil shocks of the 1970s.

He predicted the global economy will adjust by boosting energy exploration and production and by hiking fuel efficiency.

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