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Gas prices: How much will they hurt the economy? (+video)

Gas prices are slated to hit new highs within months. How might that affect the modest economic recovery? Here's a clue: Every 10-cent rise per gallon in gas prices costs the US economy $11 billion.

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The fragile American economy has been painstakingly nursed back toward health with a variety of remedies, ranging from zero percent interest rates and extended tax cuts to the bailout of Detroit and controversial stimulus spending on roads, teacher salaries, and clean energy projects.

Now, soaring fuel prices are threatening to undo it all.

Almost everyone from consumers tanking up the family car to the local pizza deliveryman to giant companies with fleets of cars is feeling it in the wallet as the national price of gasoline heads closer and closer to $4 a gallon.

The price at the pump is rising so quickly that the extra money Americans are spending is absorbing a significant amount of the payroll tax cut that Congress agreed to and President Obama signed into law Feb. 23 to help boost the economy. (For every 10-cent increase in the price of a gallon of gasoline, it costs the economy about $11 billion. By the end of February the price was up 36 cents for the year.)

Economists say if the price stays high for a good part of the year, it could stall the creation of jobs. And higher fuel prices could eventually start to have an unwelcome side effect: spiraling inflation.

"This rise in fuel price is a negative for the economy," says John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C. "The reality is transportation gets hit and the cost of goods goes up."

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