Gas Prices Are Rising Again. Will Inflation Follow?

Guy Benhamou sends a picture of gas prices to friends while pumping gas at an Exxon Mobil gas station on June 09, 2022 in Houston, Texas.
Photo:

Brandon Bell / Getty Images

After falling all summer, average gas prices are once more on the rise and it’s not clear how that could impact overall inflation. 

A gallon of regular gas rose to $3.80 on Friday, up two cents from the day before. The average price has risen for the last nine days, up 13 cents during that time. Before then, it had been moving downward since peaking at $5.02 a gallon in mid-June. 

Whether the price will keep going up, and how much of an impact that will have on inflation in the months ahead, remains to be seen. Gas prices are one of the major components of the widely-watched Consumer Price Index measure of inflation and have a big impact on the bottom line for that figure, often dictating whether it rises or falls. 

They also largely shape consumers’ expectations for future inflation. Falling gas prices have been a major reason why the public has recently become more optimistic about the short and medium-term inflation outlook despite economic reports showing that prices for many things have stayed stubbornly high. (Economists closely follow inflation expectations, which can be a self-fulfilling prophecy—spurring behavior that either stokes further inflation or cools it down.)

While the national average gas price has gone up, you won’t pay more at the pump everywhere—prices have been rising in California and the Midwest, but have held steady or continued to decline in other places. 

Gas has gone up in some areas because of several refineries being shut down, said Andrew Gross, spokesman for AAA. Closures in California were caused by planned maintenance. In the Midwest, a fire broke out in a BP refinery last week, killing two and shutting the Ohio facility down.

East coast supply was spared any outages this week as Hurricane Ian made landfall. Despite killing more than a dozen people and causing massive property damage in Florida, it did not impact any major oil and gas facilities, so the rest of the country is unlikely to see a disruption in the gas supply, or price spikes, as a result, Gross said.

Those short-term disruptions notwithstanding, longer-term trends have been putting downward pressure on gasoline prices. Fuel prices at the pump tend to follow the prices of the oil it’s refined from, and a barrel of crude oil was just under $80 Friday. That’s lower than it had been before the Russian invasion of Ukraine in February caused global oil prices to spike. 

Worries of a global recession have reduced demand for fuel, which has kept oil prices low, Gross said. Not to mention, gas prices usually tend to drop in the fall, after the summer driving season ends. 

Gas getting cheaper would help lower inflation, but there’s another sneaky way that fuel prices could keep prices higher for longer. Costlier gas—especially the diesel fuel that trains and trucks use—makes everything more expensive to transport, which affects prices for all kinds of products. And while diesel prices have also fallen, they’re still farther above gas prices than they normally are—low supplies of the critical fuel and difficulty importing enough of it have kept prices elevated, according to a recent analysis by S&P Commodities Insights.

“Almost every consumer good in this country is driven around in a diesel-powered vehicle,” Gross said. “It costs more to get it to where it has to go, and those costs tend to get handed down the line.”

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. AAA. Gas Prices.

  2. Bureau of Labor Statistics. “Beyond the Numbers.”

  3. University of Michigan. “Oil Prices, Gasoline Prices and Inflation Expectations.”

  4. The Conference Board. “U.S. Consumer Confidence.”

  5. Econofact. "Thinking Can Make It So: The Important Role of Inflation Expectations."

  6. S&P Commodities Insights. “US Atlantic Coast, Midwest see historic low diesel stocks heading into fall season.

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