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With the average nationwide gas price hovering above $ 5 a gallon early Saturday, rising fuel prices in the United States are creating new tensions for millions of consumers and businesses, while exacerbating insoluble political challenges for to the Biden administration.
Rising gas, oil and diesel prices have imposed higher costs on all types of companies, forcing them to raise prices for their customers and withdraw new investments. There is a risk of a slowdown in consumer demand as households reduce other spending to adapt to their new fuel costs. Gas purchases alone account for only a relatively small share of the budgets of most households, but energy is so crucial to the functioning of the economy as a whole that price increases bring higher prices in many others. sectors.
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Rising prices show no sign of slowing down in the immediate future, as global forces continue to prevent disrupted supply from keeping up with strong demand from countries that are recovering rapidly from the pandemic. Western sanctions on Russia for invading Ukraine have wreaked havoc on world energy markets, but the most dramatic measure – the EU’s ban on Russian oil imports – will not even take effect until the end of this year. Gas prices could also further drive drivers on the road for the summer holidays, and lifting covid restrictions in some Chinese cities are expected to boost fuel demand there. , putting more upward pressure on prices internationally.
Energy costs rose 3.9 percent from April to May, while overall energy prices have risen 35 percent since last year, according to a report from the Bureau. of Labor Statistics published on Friday. Global inflation hit 8.6 percent in May, the government reported on Friday, the highest rate in 40 years.
The national average price of gasoline rose more than $ 5 a gallon for the first time, according to a report by the AAA nonprofit car club on June 11th. (Video: Reuters)
The relentless rise in gas prices has become a major domestic political threat to the Biden administration ahead of this fall’s midterm elections, and the White House has few obvious solutions for reverse the trend despite intense push from key collaborators and the president. to himself. The White House is now caught between Liberal allies in Congress who are pushing for increased populist attacks on oil and gas companies, and the views of some of its trusted economic experts who believe such efforts could be counterproductive.
A poll published Thursday by the Washington Post and George Mason University’s Schar School found that Americans were very concerned about both inflation in general and rising gas prices in particular. About 44 percent of drivers say they have only partially filled their car’s gas tank as a result of higher prices, and 61 percent of those earning less than $ 50,000 a year do so. About two-thirds of drivers reported making fewer trips to the grocery store due to rising gasoline prices.
“This is a big economic and political albatross in the neck of the administration, and the difficulty is that there really isn’t an easy way to deal with the political tools available,” said Eswar Prasad, an economist at the University of Cornell.
Americans are not used to seeing energy prices as high as they have been in recent months. The average price of a gallon of gasoline in the U.S. reached $ 5,004 on Saturday, according to AAA. At least 19 states already have average gas prices of $ 5 or more, with California above $ 6 a gallon. Some analysts think the United States could approach a national average of $ 6 a gallon by the end of the summer. Diesel prices, especially for the truck and construction industries, rose nationally from $ 3.21 last year to $ 5.74 on Friday, a record, according to GasBuddy, which tracks fuel.
These higher energy prices seep into almost every major part of the economy. The costs of electricity, transportation, shipping, logistics, air travel, agriculture, fertilizers, and the production of other commodities are rising. They cut business profits: Walmart recently noted that fuel and storage spikes were hurting its profits. The demand for natural gas is rising worldwide to offset Russian energy, and as a result, so is the demand for American natural gas, creating new financial tensions for domestic manufacturers and the country’s electricity grid. just as more and more Americans are starting to make the air work. conditioner this summer.
Higher energy prices are also often a harbinger of an economic recession, as consumers respond to higher prices by reducing their spending on other goods and services. Historically, oil price spikes such as those now facing the West have “always” preceded or led to an economic downturn, according to a research note by Jeremy Grantham, an analyst at GMO, an asset management firm. and investments.
Most Americans expect inflation to worsen, according to the Post-Schar School poll
“I would be on high alert right now to see if the economy succumbs to this latest stab at the heart of higher energy prices,” said Chris Rupkey, chief economist at Fwdbonds. “Realistically, it will be a miracle if we don’t go into recession.”
But the post-covid economy has repeatedly defied the expectations of experts, and there is good reason to believe that strong growth could survive higher energy prices. Gasoline purchases accounted for about 3 percent of consumers’ annual spending before the pandemic began, according to the Bureau of Labor Statistics. Unlike the 1970s, America is now a major producer of global energy supply, meaning high prices benefit U.S. energy producers, rather than limiting domestic household costs as companies they can increase hiring and spending with their higher income. Businesses are also less vulnerable to gas and oil price volatility than before, due in part to improved efficiency over the past few decades, according to Matthew J. Slaughter, an economist at Dartmouth College.
Economic growth has remained strong in the United States since the early pandemic closings rose shortly afterwards, and policymakers expected demand to cool as inflation has risen sharply with faster price increases to the consumer in about four decades. Rising energy spending could, they hope, exhaust demand from other sectors, allowing other price pressures to ease. This could hurt in the short term, but it could help in general.
“It sounds hard to say, but we need a slowdown in aggregate demand,” Slaughter said. “And it’s not that great in relation to other things in the consumer basket.”
The economy is showing resilience despite growing fears of recession
But while higher gas prices are helping to slow the economy and domesticate inflation, politicians are also tightening their grip. And lawmakers and the Biden administration they are desperate to reverse the trend. The White House has taken a number of actions to alleviate the gas price crisis, such as pledging to release 1 million barrels a day from the country’s Strategic Oil Reserve and deploying the Defense Production Act to promote production of critical minerals. The White House has also allowed the sale of a mixture of gasoline composed in part of ethanol during the summer despite resistance from environmental groups, who argue that the measure will worsen air pollution.
The president is also planning a trip to Saudi Arabia, as the United States seeks to increase oil production in other parts of the world to reduce global dependence on Russia, the world’s third largest pre-war oil supplier to Ukraine. . Biden had once promised to make Saudi Arabia an “outcast,” given its treatment of women and other human rights abuses. But the White House has defended the possible trip, both to help negotiate diplomatic talks in the Middle East and to increase oil production. The U.S. government has also tried to work with Venezuela and other oil producers to increase supply since the start of the Russian war.
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White House officials have been frustrated, however. as their efforts to this point have been confused by global forces. Earlier this month, a group of oil-producing nations known as OPEC Plus announced that they had pledged to increase production by this summer, a move the Biden administration quickly praised. Internally, White House officials expected the announcement to cause a drop in oil prices, two people familiar with the matter said. In contrast, prices continued to rise.
“They were perplexed that there would be no more lasting reaction,” a White House official said, speaking on condition of anonymity to describe private conversations. “They said, ‘Man, we can’t rest.'”
Biden on Friday blamed major oil and gas companies for doing nothing more to increase production, accusing them of picking profits before lower prices for Americans. “They’re not drilling. Why aren’t they drilling? Because they make more money without producing more oil,” Biden said. “The price is going up.”
The Post-Schar School poll found that 72 percent of Americans blamed corporations for trying to increase profits by rising gas prices, including 86 percent of Democrats, 52 percent one percent of Republicans and 76 percent of independents. The overall figure blaming corporations was higher than that blamed on Biden or the disruptions caused by the pandemic (both 58 percent) and roughly the same as the one blamed on Russia’s invasion of Ukraine ( 69 percent).
Biden has paused before embracing some of the Democratic-led actions in Congress to target oil producers. Senators Sheldon Whitehouse (DR.I.) and Elizabeth Warren (D-Mass.) Have pushed for a tax on the profits of oil and gas companies that would return revenue to …