U.S. Records Another Record For Retail Gasoline

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Last week’s jump in retail gasoline gives the US another dubious record, the highest average price ever recorded. Diesel is tracking back into record territory, as well. Families and businesses alike across the country feel the pain of these economy-killing prices continuing to spike. In interviews across the US, economists are being asked how much higher can these prices rise. The answer is always sobering.

Gasoline Prices

With no intention of changing the direction the Biden Administration is heading, some are speculating that we may see diesel over $8.00 per gallon and gasoline over $6.00 per gallon by Mid-Summer.

We must remember that this time of year represents planting season for our nation's farmers and graduation for so many of our young folks. It also represents the beginning of the “Drive Season” and a time when families travel for vacation.

This year, however, families, like many of our businesses, are all weighing their expenses to see if the budgets can hold the ballooning energy costs and for how long.

Last week’s FOMC minutes and Jerome Powell’s press conference after the minutes were released started to sound like the FED had a good handle on managing inflation until he concluded the press conference. Then the reality of what was said began to sink markets! What a tangled mess.

With wholesale and retail prices for finished products spiking again, people across this nation are beginning to ask how much longer this can go on.

I was doing an interview for a radio station (KURV) in the Texas Rio Grande Valley, and this question was paramount on the hosts' minds how high can prices go, and when will there be some relief to these prices. But unfortunately, the answers weren’t what they wanted to hear.

According to Triple-A, the average retail price for gasoline hit a record high yesterday of $4.37 per gallon, and today, they posted a $4.40 mark. Diesel fuel was posted yesterday at $5.65 per gallon, and today it is higher again.

The majority of the inquiries we get are from media outlets looking for some idea of how high these prices will go and how long these prices can stay with us.

It all started in late 2019 when the word of an outbreak from a lab in China began to circulate. I remember hearing about the outbreak in November, and the concern with which the reporter delivered his report caught my attention.

One thing led to another, and by Mid- March, the US began to shut down its vast economic engine. We scared the life out of our economy, and when most of us came out from under the bed, we figured we might survive this threat.

Then at the end of the second quarter of 2020, the GDP posted its biggest drop ever to a -31.2, and the next quarter the GDP recovered to a +33.8. This is the exact point where inflation began to grow.

So, the pandemic was the genesis of our inflation problems, but that’s only a small part of the story. Then, there was an election, and a change in governance occurred at every level. A big part of the change was the US working to discontinue the use of fossil fuels, and that added fuel to the fire. (To be continued next week)

Timothy S. Snyder, Economist
Matador Economics