Americans keep driving even as gasoline prices rise and disrupt the economy

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The hit from high gasoline costs is rebounding across the economy, with industry analysts seeing little sign of abating.

Retailers and trucking companies are in a state of heightened anxiety over a worsening diesel shortage, which could lead to intermittent rationing in some places. Similar concerns are plaguing the aviation industry as jet fuel becomes more scarce. Manufacturers are grappling with the cost of plastic packaging, which is made from crude oil that is in high demand for gasoline. Even boaters are weighing whether they should hold off on putting their boats in the water now that filling their tanks can cost hundreds of dollars.

Soaring prices have even affected school meals. In Davenport, Iowa, snacks of rainbow carrots and other fresh fruits and vegetables are suddenly in jeopardy as gas prices soar above $4 as part of a federal grant to promote healthy eating. Suppliers are charging extra to cover high fuel prices, forcing some schools to end deliveries early.

Next comes the trouble with bread. The company that delivered it first demanded a hefty fuel surcharge, then eventually told the region not to bother. It says there is simply no way to keep bread going to school next year. The region has turned to another company, paying nearly double — $40,000 more — to deliver less frequently.

“It’s stressful,” said Coney Dobers, superintendent of food and nutrition services for the Davenport School District. “People keep saying, ‘Isn’t the school this year better than last year?’ They’re not. I’ve never experienced anything like that.”

Biden takes extra steps to ease gas prices as inflation rises

Natural gas prices have become a particular concern amid other troubling signs in the U.S. economy. Major retailers reported lower earnings this week, sparking fears that the country may be headed for a recession, helping push the S&P 500 briefly into bear market territory on Friday before rebounding late in the session. Food, housing and other forms of energy prices are also rising steadily, fueling inflation.

Fuel prices remain unchanged pass An early milestone, the national average is now over $4.59 a gallon. That’s 50% higher than gas at this time last year, according to AAA, as a combination of factors has created a supply shortage not seen since the onset of the Great Recession in 2008.

While the war in Ukraine played an important role, as the world shunned Russian oil, not the only challenge. A slump in fuel demand during the pandemic has prompted producers to cut investment in drilling and refining capacity. The oil and gas industry now finds itself ill-equipped to meet the demands of society getting back on the road.The federal government has exhausted most of the limited tools It has to face price surges such as the release of oil from the Strategic Petroleum Reserve.

“The bottom line is it’s going to be an expensive summer,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.

This week, Treasury Secretary Janet L. Yellen responded to the warning in softer language, saying during a visit to Germany In the short term, upward pressure on energy prices is likely to continue.

Yellen warns of ‘stagflation’ risks to global gas and food prices

One thing Americans haven’t done is drastically cut back on their driving as rising gasoline prices force Americans to change their spending habits. All of this is driving prices even higher at this time of fuel shortages. “As we reopen, there’s a lot of pent-up demand,” Tran said. “People are willing to pay higher prices to make up for lost travel over the past few years.”

It’s a different economic landscape than the last time gasoline prices spiked like this, Summer 2008. At the time, Americans had been on a spending binge for some time, and household savings rates were particularly low. Non-essential driving was a luxury that Americans could not afford at the time. Natural gas prices fell again relatively quickly after a brief spike.

By contrast, household savings are now at record highs as people are saving coronavirus Pandemic. “As a population, we have never been more willing to bear high gas prices than we are now,” Tran said. Therefore, even if prices continue to rise, demand will not weaken.

An estimated 37.9 million Americans are expected to hit the road over Memorial Day weekend, more than the number of people who drove by car on the holiday weekend before the pandemic hit and an 8.5% increase from last year when gasoline prices were much lower. predict Provided by location data company Arrivalist. The company attributes the trend in part to Americans abandoning air travel.Airfare prices have become prohibitively expensive For many, it’s because the airline industry is grappling with its own fuel shortages.

While Arrivalist’s claim that “American road travel is booming” isn’t an overstatement, some drivers were shocked by what they saw at the gas station.

Amanda Laudwein of Silver Spring, Maryland, was finally able to attend her nephew’s wedding at Death Valley National Park, which spans Nevada and California, after it was twice postponed due to the coronavirus . This already expensive trip comes with unexpected costs: A gallon of unleaded gas costs $8.25 at the Furnace Creek gas station in Death Valley, the only place where you can fill up for miles.

“It cost us $120 to fill the van,” Laudwin said. “It was shocking.”

Like many other Americans, though, the 67-year-old has no plans to cut back on travel. Whether or not gas prices were high at the time, she was looking forward to a cross-country road trip in the fall. “For a long time, people have been very cautious about their money,” she said. “It doesn’t stop us from going where we want to go. …I want to see the prairie.”

While old driving habits remain, high gas prices are forcing Americans to make other adjustments. Walmart’s shares suffered their biggest drop since 1987 this week after an earnings report acknowledged that high oil prices were hitting its business. They impose unexpected operating costs on companies, while also changing the way consumers shop, prompting them to consolidate trips to stores and forgo buying non-daily necessities.

Walmart CEO Doug McMillon said on this week’s earnings call that when they see a lot of money going into the tank, “customers are more price-sensitive now. … They’re watching closely. Described by Walmart shoppers as “portfolio managers” who carefully balance their budgets, they are more reluctant to buy things like exercise equipment unless they see prices drop.

Consumers have also been impacted unexpectedly.A sort of Research from ten years ago It was found that when gas prices soared, obesity rates tended to drop — not because people gave up their cars to walk or bike, but because they cut back on budget services such as housekeeping and gardening, opting to burn calories on their own.

Meanwhile, older drivers who experienced gasoline shortages and stagflation in the 1970s were more likely to link higher gas station prices to a worsening economy and cut spending faster, according to a recent study. Research based on extensive survey data From Gallup.

“I grew up waiting in line to refuel,” said James Cassel, an investment banker in Miami. “Most people don’t remember.”

While Cassell said he was relieved not to relive the long queues at the pump in the 1970s, skyrocketing prices have caused a litany of headaches for the mid-sized companies he invests in. Fuel and other costs for manufacturers are rising so fast, he said, that big retailers are easing rules on when manufacturers can raise prices on products on their shelves.

But that doesn’t mean consumers won’t just switch to generics. Cassel is working with a food company that is trying to adjust its budget to deal with exorbitant gas costs, and is weighing whether it will lose more customers if it raises product prices or whether it should cut costs by downsizing.

Economists and energy analysts have warned that the cycle of rising energy prices driving inflation will soon end, and the outlook is bleak. Only a few things can end it. One is the massive increase in available oil, gas and renewable energy, which most analysts believe is still years away. The other is recession.

A less painful alternative to a recession is for consumers to get fed up with high prices and modestly reduce spending on natural gas and other products, reducing demand for the fuel.

“If it wasn’t a coronavirus reopening year, I’d say that when gas prices hit $5 a gallon, consumers would start pulling back,” Tran said. “But I’m reluctant to make these predictions for this summer. A year from now, maybe everyone has had enough travel and demand starts to drop.”

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