“Customers really don’t want to hear this, but fuel prices are going through the roof, so we have to charge extra,” said John Migliorini, vice president of Lakeville Trucking in Rochester, New York, where the cost of diesel fuel has nearly doubled. about $400,000 per month. “What choice do we have? I have never seen prices jump so high and so fast.”
The company has a fleet of 30 tractor trailers that transport general cargo and food products, including products for the Wegmans supermarket chain. Each truck consumes about 100 gallons of diesel a day, Migliorini says.
Record high gas prices are seeping into everyday expenses beyond refueling, adding new uncertainty to the economic recovery. Prices hit $4.33 this week after the Biden administration moved to ban Russian oil imports, raising the possibility of higher short-term inflation while threatening economic growth and spending, and even changing hiring patterns. Higher energy costs are also complicating the Federal Reserve’s efforts to curb inflation, which soared to a new 40-year high this week.
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Economists say a one-two hit of rising prices and a deepening geopolitical crisis could stall a quick recovery. Goldman Sachs this week downgraded its annual growth forecast for the US, citing “higher oil prices” and said there is a risk that the US will enter a recession next year.
But unlike in the 1970s, when a spike in oil prices triggered a multi-year recession, the underlying strength of the US labor market, combined with additional household savings and reduced dependence on oil, could help insulate the country from economic shocks.
“Rising energy prices will weigh on US economic growth,” said Peter McCrory, an economist at JP Morgan. “But overall, we still expect above-trend growth this year.”
The average price per gallon of gasoline has jumped 13 percent this week, according to AAA. Overall gasoline prices are up 38 percent from last year, according to the latest Labor Department inflation data.
Oil has already been at a premium since the pandemic, with strong demand and limited supply. The war in Ukraine only exacerbated the situation. (Lee Powell/The Washington Post)
This sudden jump creates new challenges for Dennis Coyle, who owns a landscaping business in Morris County, New Jersey.
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“My entire business runs on gasoline: cars, trucks, lawn mowers, weeders, blowers,” he said. “The simple math is that if prices stay this high, my fuel costs will increase from $20,000 to $40,000 this year. “.
Coyle, whose employees drive Ford pickups, has begun raising prices for some of his customers by $1 to $2 a week, although he says he is wary of scaring them away.
“In my business, if you raise people’s prices, they’ll just go somewhere else,” said the 35-year-old. “It’s very difficult to know what to do.”
As gas prices rise, consumer spending tends to decline. JP Morgan analysts found that every 10% increase in gas and oil prices means consumers will have to spend an additional $23 billion a year to keep up with previous spending patterns. But the pandemic has also boosted Americans’ bank accounts, leaving them with $2.5 trillion in additional savings to soften the blow.
“Oil price shocks generally don’t have as much of an impact on the overall US economy as they used to, but there are still concerns — not just energy prices, but general inflation leading to a recession,” said Harrison Fell, Sr. Researcher. Research Fellow, Center for Global Energy Policy, Columbia University. “There is still a lot of uncertainty about how things might go.”
For businesses heavily dependent on fuel, recent price hikes have already become a major stumbling block. Airlines, for example, typically spend about a third of their spending on fuel, meaning that any price spike has a noticeable impact. As a result, some international carriers are already adding fuel surcharges to ticket prices. Alaska Air Group is cutting up to 5 percent of its flights in the first half of the year as a result of “soaring fuel costs,” a corporate statement said this week.
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And while many airlines are locking in lower rates by “hedging” oil prices—essentially committing themselves in the future—major U.S. carriers, including United Airlines and American Airlines, are not doing so, making them particularly susceptible to oil price fluctuations. energy. Airfare prices, already on the rise due to increased demand and rising jet fuel costs, are likely to rise even higher in the coming months as the industry adjusts to the latest energy shocks, experts say.
At the same time, rising gasoline prices could also lead consumers to cut back on travel and retail spending. Clothing chain Children’s Place said this week that “the volatility in oil and gas prices and its impact on our customers” is likely to devour sales and profits, while exceeding the benefits of last year’s federal stimulus payments. Meanwhile, according to chief executive Jonathan Johnson, online retailer Overstock.com is already paying more for ground shipping due to rising fuel prices.
“We feel it,” Johnson said. “And we suspect — though it’s probably too early to tell — that clients are being extra careful about how they spend their discretionary income.”
“Higher energy costs are affecting businesses on both sides of the equation: driving up their costs, and also leaving consumers less money to spend on other things,” said David French, senior vice president of government relations at the National Federation. retail trade, industry trade organization. Group. “Over the past year, we have seen gas prices rise by more than a dollar — and this week alone — by about 60 cents — which means that many billions of dollars are probably not being spent elsewhere due to gas prices. ”
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In addition to rising gas prices, energy price spikes could change the job structure in the US and exacerbate labor shortages in certain industries, according to Guy Berger, chief economist at LinkedIn. Sectors such as leisure and hospitality, which have been rapidly hiring workers in recent months, could shrink if consumers start canceling travel plans due to higher prices.
On the other hand, energy and mining companies, where recruitment stalled during the pandemic, could see a surge in demand.
“If crude oil prices remain sky-high, this will lead to a redistribution of vacancies across sectors and geographies,” Berger said. “Until now, energy and mining have been among the least performing industries during the pandemic, but that could change quickly.”
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In Palestine, Texas, EasTex Solar has increased its workforce by 30% over the past year to keep up with demand, according to company owner Cal Morton.
Demand for battery-powered solar panels quadrupled in early 2021 after severe winter storms left much of the state without power for several days, he said. Since then, business has remained buoyant and continues to grow every week.
“People in Texas are very aware of energy prices and are starting to understand that prices won’t stay low forever,” he said. “Many have just received the biggest electricity bill of the year, and at the same time they are worried that energy prices will skyrocket because of the war.”
While Americans are already feeling the immediate strain of rising gas prices, it’s too early to tell the long-term impact on the economy. In one scenario, higher fuel costs could lead to lower overall spending if Americans decide to cut costs in other ways.
Lydia Ibe, a mobile groomer in Edmond, Oklahoma, says she’s already starting to see this dynamic play out: as she raises fees, some clients are dropping services altogether.
Ibe charges $10 to $50 more per meeting to keep up with rising $500 a week or more costs to fuel her Dodge Ram pickup truck, trailer and generator to power clippers and hair dryers.
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A hit to consumption from higher energy prices could eventually help curb inflation, but it’s important given the uncertainty over how long the war in Ukraine will last and how high oil prices will be.
“Gasoline prices have hit me hard, so I have no choice but to take more,” said Ibe, who founded Splish Splash Mobile Dog Grooming six years ago. “My clients understand – of course they understand because they see what is happening – but those who are retired or living on a fixed income can no longer afford it. I’m losing these clients.”