American consumers are already struggling with the highest inflation in four decades – a phenomenon that reduces purchasing power and lowers wages. But there may be even more economic problems: One analyst estimates that the recent spike in gas prices in the wake of the Russian invasion of Ukraine could add up to $2,000 in annual expenses to a typical family’s budget.
The average cost of a gallon of regular gasoline for the first time since 2008 exceeded $4 per gallon. Many consumers have witnessed skyrocketing prices at gas stations, with the price of regular gasoline jumping 41 cents in the first full week of the war with Russia. in Ukraine, according to AAA.
This is likely to cost the typical household an extra $2,000 a year in gas, according to a Yardeni study released Monday. This is due to about $1,000 extra spending at the grocery store due to inflation, Yardeni said, meaning the typical household will have $3,000 less on other items this year.
Consumers are worried about the impact on their budget, and some are already planning to cut back on driving and keep an eye on their spending. This could pose a threat to the post-pandemic economic recovery, given that, according to the Federal Bank of St. Louis, personal consumption accounts for about 70% of gross domestic product.
When local gas prices recently jumped to around $4.25 a gallon, writer Andrew Liptak of Barre, Vermont, said he emailed his boss to ask if he could work from home because his commute and back to the office is about 34 miles, which runs through hilly terrain and consumes more gas – suddenly it will go up a lot.
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“In the meantime, I could try to drive as little as possible,” Liptak, 36, said. “I thought it would include not going too far to watch something,” like movies. Liptak also plans to combine errands to take one trip in his car instead of multiple excursions.
But what worries him most is the cost of fuel to heat the house. “The last time a full tank cost $500,” he said. “I suspect there will be many more this time around.”
On social media, consumers have expressed concern about the extra cost of commuting, with one commenter noting that they live paycheck to paycheck and budget “to a nickel”. They added, “I’m short this week. People like me are paying the real consequences and no one talks about us.”
Meanwhile, some taxi drivers are asking for fuel surcharges or other forms of assistance as they cope with higher gas prices, and the Canadian Taxi Association is asking for a fuel surcharge on taxi rides, the Vancouver Sun reported. In response to a question about whether Uber could raise fares due to fuel costs, the company said it launched a service last year that gives drivers discounts of up to 25 cents a gallon at some stations.
“[W]We will continue to monitor gas prices and listen to drivers in the coming weeks,” an Uber spokesperson said in an email to CBS MoneyWatch.
consumer pain
Inflation is causing financial hardship for some consumers, according to a new survey by credit card company Capital One. It found that one in four Americans had failed to pay at least one bill in the past month, and 62% said they cut spending in some way.
Overall, Americans’ sense of financial well-being is almost as low as it was at the start of the pandemic, Melissa Burden, head of consumer intelligence at Capital One, said of the new study.
“Americans of all income levels are feeling the impact of inflation, and most people are already making adjustments—they are spending more on staples” like groceries and gasoline, Burden said. “What matters to me is how much stress American society is already under and how it is preparing for the ongoing stress.”
About half of the low- and middle-income people Capital One defines, respectively, as people earning less than $25,000 in household income and those earning between $25,000 and $100,000, say they have recently cut discretionary spending on shopping, dining, and entertainment. , the study found.
Inflation could pick up slightly due to pressure from the Russian invasion of Ukraine, which includes higher gas prices, as well as potentially higher grain and fertilizer prices, pushing up food prices, said David Kelly, chief global strategist at JPMorgan. funds. Monday research note.
“This could well boost CPI inflation to 8.0% year-on-year in March,” he said.
That’s up from an already high inflation rate of 7.5% in January, according to the latest available data. The government will release the next inflation report on March 10, which will track the increase in consumer prices in February.
Higher prices could seep into household budgets, predicts Yardeni Research: “Rising commodity prices as a result of the war are likely to lower consumer spending now that they have to spend much more on gasoline and food.”
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