Mar 7, 2022 - Economy

Soaring gas prices not yet souring demand

Illustration: Rebecca Zisser/Axios

Gas prices are soaring toward an all-time high, but drivers are shrugging it off — at least for now.

Why it matters: Energy prices were already a significant factor in the 40-year inflation high — and further increases will eat away at the wage gains workers have made during the pandemic.

  • The national average price of gasoline rose above $4 per gallon for the first time since 2008, a result of the Russia-Ukraine war sending oil prices above $130 per barrel.
  • Reports that the U.S. could cut off Russian imports is among the factors fueling increased prices.

Yes, but: Demand for gasoline increased in the last two full weeks of February, the most recently available data, according to the Energy Information Administration.

  • Demand was 7% higher in the week ending Feb. 25 than the comparable period a year earlier, when the average gallon was below $2.70.

Americans are fed up with being cooped up during the pandemic, and they’re eager to hit the road for vacation in 2022.

  • “The effects of a two-year pandemic are finally fading,” JPMorgan Funds chief global strategist David Kelly wrote Monday. “This is unleashing huge pent-up demand for travel, entertainment and leisure services.”

Worth noting: $4 a gallon gas isn't what it used to be. The nation’s record of $4.11 in July 2008 would've translated into a price of $5.25 in January 2022 when accounting for inflation.

  • Keep in mind: Low-income folks are harder hit by the increased price of fuel, as it represents a bigger slice of their budget.

The big question: How high can prices go before Americans change their behavior?

  • GasBuddy petroleum analyst Patrick De Haan projected that a $4.50-per-gallon average is possible in the near future.
  • Jay Hatfield, CEO of investment manager Infrastructure Capital Advisors (ICAP), projected the country would hit a record of $4.70 later this year.

The bottom line: The upward pressure on gas prices is colliding with Americans’ desire to live life — and for now the latter factor is winning out.

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