Rising Gasoline Prices Hit Inflation-Weary Americans
Costs are making life harder for businesses that have been managing inflation for months
WSJ
By
Benoît Morenne
Aug. 28, 2023 8:00 am ET
It’s Groundhog Day at the pump.
U.S. consumers in recent weeks have seen gasoline prices tick up to reach their highest levels so far this year. The increase is leaving many with an unwelcome sense of déjà vu, recalling
last summer’s record gasoline prices.
Prices have retreated slightly in recent days but remain elevated. A gallon of regular gasoline averaged about $3.82 nationally on Sunday, about 60 cents higher than at the beginning of the year, according to OPIS, an energy-data and analytics provider. Diesel prices are down about 31 cents compared with early January but have gained more than 40 cents from a month ago.
The ascent of oil prices could complicate the Federal Reserve’s effort to
lower inflation to 2%, economists say.
The increase is already weighing on small-business owners. Companies are delaying upgrades, losing workers or avoiding hiring extra help and moving to charge customers more as a result of higher fuel prices.
In the past few months, the Moving Company, a mover in Springfield, Mo., lost three drivers in part because higher fuel prices made their commute more expensive, said Will Wheeler, a controller at the company.
Meanwhile, the company increased its mileage charge by $4 earlier this year because of higher fuel prices and might add another $3 on top of that, Wheeler said. The hike has contributed to turning some customers away.
“We’ve lost a lot of business,” Wheeler said.
The fluctuations in gas prices are whipsawing households and businesses.
Russia’s invasion of Ukraine last year sent U.S. oil prices soaring past $120 a barrel, and the price of gasoline past the $5 mark, prompting the Biden administration to
tap the emergency petroleum reserve in a bid to tame inflation.
Recession fears and a
weak economic recovery in China brought oil prices back to earth, and kept gasoline prices below $3.60 a gallon for much of the year. The drop was a
significant factor in curbing inflation, said Ben Ayers, a senior economist with insurance company Nationwide Mutual Insurance.
Falling coal and natural-gas prices also helped business and consumers by lowering
electricity bills. As of July, energy as a spending category had seen a 12.5% decrease over the past 12 months, according to the Bureau of Labor Statistics’ consumer-price index.
Now,
oil production cuts by Saudi Arabia and Russia have modestly succeeded in shoring up oil prices to around $80 a barrel, pushing prices at American pumps higher.
Another factor boosting fuel prices: U.S. refineries in the first half of 2023 caught up with maintenance they had postponed during the pandemic, taking about 2.2 million barrels a day of refining capacity offline. That amount is about one million more barrels than what would go offline because of maintenance during a typical year, said Debnil Chowdhury, head of Americas fuels and refining at S&P Global Commodity Insights.
Unplanned outages also played a role in some of the loss in capacity, he said. Some analysts said the searing heat this summer may have affected operations at refineries.
The outages raised the cost of producing summer-grade gasoline right as Americans hit the road, according to the U.S. Energy Information Administration, which resulted in higher prices for consumers.
Tony Black, a sales manager at Brown Brothers Catering in Orem, Utah, said the recent jump in gasoline prices has heaped new pressure on the business by postponing upgrades to more-efficient ovens and making it harder to build cash reserves.
Food prices have stabilized, giving the company some breathing room, he said. But elevated fuel prices make it less likely that the company will hire extra help if it needs to, Black said. “It’s certainly a delay on our ability to grow.”
Topping tanks isn’t as painful to consumers as it was last year. The
economy is stronger than many expected, and Americans have been collecting extra income thanks to higher wages, economists said.
“The effect on consumers and businesses should be manageable,” said Lutz Kilian, a senior economic policy adviser at the Federal Reserve Bank of Dallas.
But energy prices, while not as big a needle-mover as housing or service costs, will add to inflation in the near term, economists said. They will also compound other costs inflation business owners are contending with, including elevated labor costs and high credit-card fees.
The Cleveland Fed estimated there was a 0.8% increase in the consumer-price index in August from the month before. That rise was largely driven by the increase in gasoline prices, Nationwide Mutual’s Ayers said.
Analysts said refiners transitioning to winter-grade gasoline, which is cheaper to produce than summer gasoline, should take some pressure off prices. Growing demand for diesel from the agricultural sector going into the fall should help bulk up stocks of that fuel, they said.
For now, pricey trips to the gas station are bringing back bad memories for Codi King, a hairdresser in Tennessee.
She frequently drives about 160 miles a day to do hair and makeup for brides. After fuel prices skyrocketed last year, she bumped her rates by $25, to $225, and started charging clients a $40 travel fee when she has to drive more than 25 miles. Now, she is thinking of raising her rates in the coming months—by another $25.
“I’m just aggravated that inflation is so high right now,” she said.
