Soaring gas prices not yet souring demand
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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.
