The U.S. Energy Department said earlier this week that it expects average monthly gasoline prices to peak at $3.60 a gallon this spring, since the high prices will serve to curb demand.

For investors who are tired of feeling like they’ve been mugged every time they fill up at the corner gas station, this forecast had to nurture a feeling of relief – as well as a belief that pump prices will finally start to decline.

That may well happen in the short term (although even the Energy Department report said that before prices level off there could be interim price spikes that will take pump prices up over the $4 a gallon level).

But for the long haul, after looking at this prediction, we can’t think of a more powerful indicator – or surefire sign – that prices at the gas pump are headed higher … much higher.

Here’s why.

First and foremost, governments have had an unbelievable record of making bad decisions using bad data. And that record goes back centuries. Unfortunately, it’s the taxpayer who usually ends up dealing with the consequences of these ill-advised government “predictions” after these civil-servant prognostications lead to such maladies as inflationary spirals, taxation cycles, recessions, monetary-policy miscues.

Why should this time be any different? History suggests it won’t be.

When it Doesn’t Compute

Economic forecasters – especially those employed by the government – have a spectacular history of getting little, if anything, right. Not only that, but according to a study conducted by Societe Generale (OTC: SCGLY), financial analysts lag reality badly and change their minds only when there is irrefutable proof they are wrong.

William A. Sherdan, author of the book, “The Fortune Sellers: The Big Business of Buying and Selling Predictions,” notes that “economic forecasters have routinely failed to foresee turning points in the economy, the coming of major recessions and the starts of recoveries.”

As if that weren’t bad enough, University of Chicago Professor Victor Zarnowitz – a leading global expert on business cycles and forecast evaluation – specifically analyzed the U.S. Federal Reserve, the President’s Council on Economic Advisors and the Congressional Budget Office to assess the error rates associated with their predictions. His work found that 46 of 48 predictions made by this bunch missed major economic turning points including – most notably, the severe recession beginning in 1974.

Don’t expect their marksmanship to get better anytime soon, either. Data we’re familiar with suggests that conventional governmental forecasting is actually getting worse over time – not better.

Which makes us all the more suspicious of the $3.60 per gallon price point, particularly since it flies in the face of nearly everything we here at Money Morning know about global gasoline demand – which is accelerating dramatically even as long-term supplies are slowly being squeezed.

We’d love to say that’s a surprise, but there’s evidence of more government meddling here, too.

A Streetcar Named … Greed

Today, few investors remember the Great American Streetcar Scandal, but it helped set the fuel pinch we’re feeling today in motion decades ago. In case you’re not familiar with it, the scandal was a joint effort between General Motors Corp. (GM), Firestone Tire, Standard Oil Corp. and Phillips Petroleum (COP) to acquire streetcar systems nationwide … after which this anti-streetcar syndicate ripped out the municipal trolley systems in order to force the mass adoption of the automobile. This all took place between 1936 and 1950.

Long story short, GM was fined a whopping $5,000 and its executives charged $1 each for conspiracy, but the damage was done. Throw in the Interstate Highway System – which came into existence at about the same time, not coincidentally – and one can easily imagine the links between higher demand and bad decision making, even if only in retrospect.

Which brings us back to the present day…

Gasoline prices are indirectly tied to oil and, as such, the $3.60 line the government drew in the sand stands directly in the face of everything we know about “peak oil” and global demand.

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