Issue of the week: Gas prices menace the recovery

last updated 8 January 2015

Just when things were starting to look up, rising gas prices threaten to spoil the fun, said Steven Mufson and Jon Cohen in The Washington Post. The national average price of a gallon of unleaded regular this week rose to $3.88, just 24 cents short of the all-time record set in July 2008, and it’s starting to affect Americans’ behavior. They’re taking shorter trips, postponing long drives, and squeezing the most out of every gallon. And sometimes that’s not enough: AAA reports that it’s taking an increasing number of calls nationwide from motorists stranded with empty tanks. Angst over gas prices could have a political as well as an economic effect. Only 39 percent of people who say gas prices are a serious hardship approve of President Obama’s job performance, and 60 percent of “independents who say they’ve been hit hard by surging gas prices” say they definitely won’t vote for him in 2012.

Businesses are trying to get on the right side of the trend, said Dan Sewell in the Associated Press. According to one estimate, the rise in gas prices since September works like a 5 percent cut in discretionary income. But grocery-store operator Kroger thinks costlier gas could actually help its business. Shoppers can use the store’s rewards card to get discounts at Shell stations, and that should boost grocery sales as shoppers accumulate rewards points. And because people tend to eat out less when gas prices are high, Kroger figures they’ll buy more food at its stores. “All of those behaviors for the most part work to our advantage,” said Kroger CEO David Dillon. Shoppers seem resigned to having less to spend, said Craig Torres in Bloomberg.com. With unemployment at 8.8 percent and 13.5 million Americans looking for work, consumers can hardly count on their wages climbing along with prices. For that reason, the Federal Reserve expects the recent rise in consumer and wholesale prices to be fleeting and unlikely to spark long-term inflation.

Optimism is in short supply, said Andrew Walker in the Muncie, Ind., Star Press. Consider Shanda Nolley, who’s juggling an 18-month-old son, a minimum-wage job, and classes at a community college, and who complains that she’s spending more on gas these days than on rent. So “she plans out trips ahead of time, just to make sure she’s not wasting gas by backtracking.” Ultimately, the perceptions of consumers like Nolley could be Obama’s undoing, said Ezra Klein in WashingtonPost.com. People’s sense of inflation is heavily influenced by the prices of the things they purchase most often—like gas. “High gas prices can trick consumers into thinking that inflation is higher” than it really is. If perceptions become reality, Obama could be a one-termer.