The recent rise in U.S. gasoline prices is driving up inflation higher than expected, complicating the Fed’s monetary easing plans and President Joe Biden’s task to convince voters his Administration is winning the fight on the economy front.
The latest U.S. consumer price reading from Tuesday showed inflation rose more than anticipated on the back of a surge in gasoline prices.
Granted, gas prices in the U.S. are now slightly lower than they were at this time last year. But they are a massive 60% higher now than they were in early November 2020, just before President Biden won the election.
The rise in gasoline prices is typical for this time of year—summer-spec fuels are being rolled out, demand is inching up as Americans drive more with the warmer weather, and production overall has been lower because of seasonal refinery maintenance.
But the jump in gas prices ahead of and during the summer is expected to reverse to a steady decline in the autumn with the end of the driving season, and ahead of the presidential election in November. Experts don’t see the average national price topping $4 per gallon this year.
Nevertheless, higher gas prices pushing up inflation numbers in an election year can’t be good for President Biden, who is struggling to convince likely voters that the economy is doing well.
The Administration doesn’t have many tools to lower gasoline and other energy prices, with the Strategic Petroleum Reserve (SPR) low. Moreover, gasoline and distillate fuel inventories in the United States are below the five-year seasonal averages, leaving prices exposed to upswings if sudden outages occur.
Gasoline prices are set to fall ahead of the election, but by then, they may have done the damage of derailing President Biden’s showing of good economic performance coupled with lower consumer prices.
Last week, gas prices rose for a second consecutive week.
“Much of the seasonal rise that happens this time of year is a culmination of refinery maintenance, the switch to summer gasoline, and rising demand,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
The current rise in gas prices is normal for this time of year, but it is still being felt by consumers/voters.
U.S. inflation rose by 3.2% over the last 12 months to February, data from the Labor Department showed on Tuesday. The rise in consumer prices was higher than expected, while gasoline and shelter contributed over 60% of the monthly increase in the index for all items.
Core inflation – prices less gasoline and food – was 0.4% last month over January, suggesting still sticky inflation in the U.S. that is higher than the Fed would like.
At a testimony to Congress last week, Fed chair Jerome Powell said the central bank would begin easing interest rates at some point this year if “the economy evolves broadly as expected.”
“But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured,” Powell noted.
Expectations of tighter crude markets in the spring and summer, and a tight global fuel balance amid shipping disruptions and slow new refinery startups could also put upward pressure on the price of diesel, which would lead to an uptick in the price of goods and services, boosting inflation.
Gasoline prices may not come to the rescue of President Biden, who doesn’t have much time to convince likely voters that he is doing a good job with the economy.
Ahead of Super Tuesday last week, a CBS News/YouGov poll found that 65% of registered U.S. voters rate the economy under President Trump as “good,” compared to 38% of registered voters who think that the economy has been good so far into President Biden’s term in office.
Fortunately for President Biden, the election in early November coincides with a seasonal drop in gasoline demand and prices in the autumn.
By Tsvetana Paraskova for Oilprice.com
