Gasoline is nearing an average of $5 per gallon across the US, economists say, but while consumers are feeling the pain, prices are not yet at a level that could push the economy into recession. economists said.
Where that breakout is located is unclear. Some argue that perhaps it’s not just gasoline that will put the economy in trouble. That said, economists say a real recession is possible if fuel prices rise to even higher levels and stay there for a long time.
According to AAAThe national average for a gallon of unleaded gasoline was $4.97 on Thursday, up about 65 cents in just one month.
Adding to the pump difficulty is the fact that other costs are also increasing, with inflation this spring is at 8.3% than last year. Rising natural gas prices are creating higher overall energy prices, while food and rents are also increasing.
“I think we are in a particularly extreme situation right now,” said Harrison Fells, senior research scholar at Columbia University’s Center for Global Energy Policy. “I don’t think many economists would argue that gas prices staying at $5 would have minimal impact. I think most of us would agree that prices staying high will not. any other policy intervention would be a drag on the economy. Whether we tip enough or not we fall into a recession is an undetermined factor.”
Economists are keeping a close eye on gas prices because of the rapid rate of increase. Rising fuel prices are noticed by drivers and higher gasoline costs could weigh on consumer sentiment and inflation expectations.
Even so, economists note that rising wages and a robust job market are working against higher prices. Unlike 2008, when gasoline skyrocketed and the economy fell into recession, consumers are in much better shape.
Michelle Meyer said: “While there’s clearly been a shock and consumer budgets are straining, the good news is that there is support from a healthy labor market and excess savings remain. 2008, zero savings”. , Chief Economist of Mastercard, USA
Household balance sheets were very weak in 2008 and consumers were heavily indebted. “The savings are minimal,” says Meyer.
According to Mastercard SpendPulse, which measures total retail sales across all forms of payment, nominal spending at gas stations in recent months has increased at a trend rate of about 30%, year-on-year. 2019.
Meyer points out that despite a spike in gas prices over the past two months, nominal spending growth has remained steady. It shows consumers have cut back on the amount of gas they’re buying because they’ve spent the same amount, she said.
“There’s been some backlash in actual consumption or use,” she said. “That means consumers are trying to make decisions, trying to figure out how to balance spending priorities. their”.
Another big difference between now and 2008 is that vehicles are more fuel-efficient and there are more hybrids and electric vehicles on the road. Commuting is also more flexible with many people working remotely or in the office on a part-time basis.
“For the average person out there, it feels very different, depending on how exposed they are to gas prices,” says Meyer.
The economy is stabilizing, but there have been some signs that gasoline prices are creating a drag, said Mark Zandi, chief economist at Moody’s Analytics. For example, some car manufacturers reported a sharp drop in sales in May, a month when the price of petrol increases rapidly. The drop was especially noticeable in sales of large sport utility vehicles.
“It shows that gas is playing a role. It feels driven by demand, not by supply,” he said.
Economists are closely monitoring consumption trends for behavioral changes. Recently, credit card use has also increased, and consumers are taking on more debt. “It looks like lower and middle income households are starting to borrow,” said Zandi.
So far, Zandi doesn’t think gasoline is at a level that makes it less likely to grow, and he doesn’t expect a recession this year either.
“I don’t think we’re there yet. If we get to $5.50 or $6, that would match $150 for a barrel of oil. I think then, we’re done. We’re in a recession.” he say. “It would be too much to bear. I think we could spend $120 if we weren’t there for too long.”
He said he expects oil prices to peak near current levels and stay under $100 a barrel by this time next year, easing pressure on gasoline prices.
“The economy is definitely on thin ice here. We need a bit of luck in terms of oil prices,” he said. Zandi said he sees a chance of one in three recessions in the next 12 months and an almost even chance of a recession in the next 24 months.
The spike in gas prices comes as more Americans are choosing to spend on things like travel and entertainment. That determination to return to normal operations could drive gasoline demand higher than it could possibly be due to rising prices.
“The savings are pretty good post-pandemic,” Fells said. “I think people are in a better position to weather those higher gas prices. Along with this pent-up travel demand, it’s protected,” Fells said. us out of this $5 gas price.”
In addition, gasoline prices are at record levels, but not as high as they were in 2008, when adjusted for wages.
Sarah House, senior economist at Wells Fargo, said she estimates gas prices will average $4.84 a gallon in June. House said, to bring that level with 2008 levels, on a baseline basis. salary adjustment department, the price will have to reach 6.41 USD/gallon.
“It won’t just take higher gas prices to push the economy into recession,” House said. “We’re slowing down but it’s still a remarkable amount of work we’re doing.”
One caveat she noted is that consumers are facing some of the fastest inflation in decades, and gasoline is only adding to that burden.
“It’s one more straw on the camel’s back,” she said, “nothing easier to make a sudden shock knock the economy off course. Due to uncertainty about how high energy prices can go, House does not believe Inflation has peakedunlike some economists.
How high can gas prices go?
Oil prices hit a high of around $130 a barrel in March after Russia invaded Ukraine but then fell again. Crude oil has bounced back and could climb even higher as European sanctions on Russian oil and as China’s economy reopens following the recent Covid shutdown. West Texas Intermediate crude futures contract just under $122 per barrel on Thursday.
Gasoline prices edged higher, but there was also less supply than usual partly due to a drop in global refining activity. In the US alone, refining capacity is down by 1 million bpd from pre-pandemic levels due to shutdowns and shutdowns.
JPMorgan analysts Gasoline can peak at $6.20 per gallon in August, but other analysts expect peak prices to be stay closer to $5.25 per gallon because drivers will likely cut it.
Patrick DeHaan, head of petroleum analysis at Gas Buddy, said demand fell year-on-year over Memorial Day weekend, the start of the summer driving season.
The Energy Information Administration said drivers used 8.98 million barrels of gas per day in the week before the holiday weekend. Last year, that level was 9.2 million bpd. In 2019, drivers used 9.4 million bpd during the same period.
DeHaan said he expects gas prices to rise almost at their peak, but all bets are off if there are any supply disruptions.
“If there’s a hurricane, if there’s a refinery, we’re going to go up to $5.50 or maybe $6. Normally, the peak is much more predictable than this year,” he said. “.
