Relentlessly high inflation is the nation’s most worrisome economic problem, prompting talk of a recession for the month even as job growth soared — US employers added 528,000 jobs in July — and consumer spending rebounded.
But lower pump prices mean less drag on the broader economy, with federal data released Wednesday showing inflation eased in July. According to the Bureau of Labor Statistics, while overall prices rose 8.5 percent year-over-year, they were far from the epidemic peak of 9.1 percent recorded in June, when the U.S. fuel average topped out at $5.02. The gasoline index fell 7.7 percent in July.
For consumers and businesses – pinched by increasingly expensive diesel costs – this is no small setback. According to estimates from the fuel-tracking app GasBuddy, Americans’ gasoline spending is now about $400 million less per day than it was in June. According to AAA spokesman Andrew Gross, more than 60 percent of the nation’s gas stations charge $4 or less for regular unleaded gasoline. Some areas are as low as $3.
Gas and oil prices have fluctuated wildly on fears that Russia’s conflict will cut supply and disrupt energy markets, as well as sanctions on Moscow and a sustained fall from the coronavirus pandemic. Crude prices were close to $80 a barrel in January and crossed $120 by March. Pump prices quickly followed suit, swelling by nearly 20 percent a week after the onslaught that began on February 24.
“We haven’t seen anything like 2022 at the pump. … We’ve seen gas prices behave like never before, jumping from $3 to $5 and now to $3.99,” said Patrick de Haan, head of petroleum analysis at GasBuddy.
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But oil prices have been cooling since early June, with West Texas Intermediate crude, the US benchmark, now hovering around $94 per barrel. Gasoline costs now correspond to levels seen before the war.
Experts say the recent fall in crude prices is due to a series of warning signs of recession in several major global economies. Slow economic growth will dampen demand everywhere — not just in the United States and Europe but also in emerging markets, said Pavel Molchanov of investment bank Raymond James. Because oil is a global commodity, a supply or price shock in one part of the world reverberates everywhere.
“This is a timely reminder that oil is a global market and price movements up or down are subject to macro trends over which governments have minimal control,” Molchanov said in an email.
Economists have been warning of a possible recession in the United States for months. Jeff Buchbinder, chief equity strategist at LPL Financial, said in a note on Monday that he thinks the odds of a U.S. recession next year are “probably a coin flip or better” despite the Labor Department’s blockbuster jobs report last Friday. The Bank of England warned last week that Britain could enter a long recession by the last quarter of 2022.
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Although economic activity has already declined for two consecutive quarters, the National Bureau of Economic Research has not declared the United States to be in recession.
Still, fuel demand is already down: The four-week moving average was 8.6 million barrels a day as of July 29, according to the US Energy Information Administration. That’s down 8.7 percent from last year.
To compensate for higher gas prices, people are driving less, combining jobs or postponing vacations, according to a July survey from AAA. Some respondents reported switching to a more fuel-efficient vehicle, buying an electric car, or using public transportation.
Neeni Theo, 64, says she retired as an art teacher in June because of the rising cost of everything.
She loved the 45-minute commute from her home in New York, NY to nearby Lisbon. But when gas prices rose, she was spending $300 a month to fill her tank.
“It’s not worth going to work,” Teo said. “I’ll spend $20, and it’s probably a quarter-tank, and I’ll probably go through it in a day.”
For Mary Ann Ruiz, 71, high fuel costs mean shorter drives around her hometown in California. Although prices have moderated since mid-June, with a gallon of unleaded fuel averaging $6.35, they’re still paying more than $5 a gallon.
Ruiz is doing things together to minimize sticker shock. She takes fewer leisure trips and is more likely to take a plane instead of driving.
Meanwhile, there is a strong possibility that prices will turn around. OPEC, a group of oil-producing nations that includes Saudi Arabia, has increased output minimally despite pleas from President Biden and other world leaders to ease supply shortages. The cartel expects oil demand in Europe to be “rather weak” for most of next year, one of the reasons it is concerned about increasing production.
Analysts note that the main culprit behind high gas prices — Russia’s war in Ukraine — is still in full swing, as are Western sanctions designed to punish Moscow. JP Morgan said in a worst-case scenario — Russia retaliates by cutting off its supply entirely — oil prices could go as high as $380 a barrel, four times where they are today.