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Record gas prices feel like a slap in the face. And there’s more to come

Record gas prices are here, just as many people are mapping out summer road trips or returning to the office for the first time in two years. That could create a particularly sticky problem for policy makers as inflation soaks into the fabric of American life. Even though gas accounts for a relatively small portion of consumers’ overall spending, those prices reinforce a broader sense of gloom that could ultimately curb spending.
The average price for a gallon of regular gas on Monday hit $4.17 — an all-time high, breaking the previous record of $4.11 a gallon that had stood since July 2008. Prices were already elevated because of supply shortages before Russia invaded Ukraine two weeks ago, but prices have spiked as the oil industry has shunned Russian crude.

That sticker shock is hard, if not impossible, for most Americans to ignore. In the short term, at least, you can’t easily adjust how much gas you need to get by.

“You could buy a different kind of vehicle or come up with different transportation options, but in the short run, you’re just kind of stuck with the gas prices,” says Carola Binder, an associate professor of economics at Haverford College. “It’s just going to mean you have less to spend on other things.”

It remains to be seen whether gas price surges are affecting consumer spending. February’s consumer price index, a key measure of inflation, will be released later this week, though it won’t reflect the most recent spikes in response to Russian aggression. But one index, released by the London-based ICE Benchmark Administration, showed Americans’ full-year inflation expectations are rising in response to the invasion of Ukraine. As of Monday, the expected pace of consumer price increases over the next year rose to more than 5% compared with 3.5% in early February.
Adding to the supply constraints, President Joe Biden announced the United States would ban Russian oil imports Tuesday, a dramatic escalation of sanctions aimed at punishing Vladimir Putin’s regime that could further unsettle global commodities markets. Although the United States consumes little Russian oil, the move raises the possibility of European nations — Russia’s primary oil market — following Biden’s lead.

Biden didn’t mince words about how the move would hit Americans’ wallets.

“The decision today is not without cost here at home,” he said. “Putin’s war is already hurting American families at the gas pump. With this action is going to go up further.”

When it comes to inflation, psychology matters. If consumers expect prices to rise, they spend more in the near term, which feeds demand, which pushes prices up further — a cycle that can be tough to break, especially when the source of the price spikes is making headlines daily.

“Sometimes people don’t really know why gas prices are rising, but this time people know that it’s because of this war,” Binder says. “The ban on Russian oil imports is important and just, and hopefully most people will see that it is worth the higher price at the pump.”

The gas price surge feels like the beginning of a grim third chapter in the pandemic era: 2020 brought the deadly virus; 2021 the devastating economic aftershocks; and 2022 marks the start of Europe’s largest ground war since WWII, which is compounding the pain wrought by the crises leading up to it.

And that reality will slap us all in the face every time we go for a drive.

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