Gas prices are falling, reaching their lowest level in almost a year
In the battle to reduce inflation, the falling gasoline price stands out, even though the Federal Reserve’s policy has little to do with it.
The national average for unleaded gas According to AAA, the price was $3.14 per gallon on December 12. That is 23 cents less than a month ago and the lowest in almost a year.
The biggest driving force behind cheaper gas is falling oil prices. The price of Brent crude oil, the international benchmark, has fallen almost 20 percent since the end of September to $76 per barrel.
Gas prices usually start to drop in the fall as most states switch to a cheaper fuel blend that contains more butane. Demand also drops after summer, the high season in the United States.
Higher gasoline prices are a burden on consumers, especially lower-income Americans who spend much of their income on fuel, and a headache for elected officials whose approval ratings are high. can be linked how much consumers pay at the pump. They have also been one of the clearest symbols of high inflation over the past two years: The average price of gas rose above $5 per gallon in June 2022, when headline inflation reached 9 percent.
The Fed’s preferred inflation measure doesn’t take into account volatile prices like fuel, and economists tend to keep gas prices low when looking at structural inflation. Oil prices are largely determined by geopolitics and the whims of foreign markets, although the president has the power to exert some deflationary pressure through the Strategic Petroleum Reserve, the country’s emergency stockpile of crude oil.
Gas prices are nonetheless a top priority for Americans, especially when it comes to shaping their opinions about the economy and elected leaders.
Research by Carola Binder, professor of economics at Haverford College, has found that consumer sentiment becomes significantly more pessimistic when gas prices are higher, and that Americans see rising gas prices as a negative omen for the economy as a whole. According to political science research, gas prices are in turn also tied to the approval of the president.
The drop in gas prices comes as consumer confidence has recovered, although it is still below pre-pandemic levels. According to the University of Michigan survey, a closely watched indicator, consumer confidence rose 13 percent in December compared to the previous month. Overall, consumer confidence is nearly 40 percent higher than in June 2022, the lowest in the survey’s history, when gas prices last reached $5 a gallon and inflation hit its highest level in four decades.