INFLATION AT THE GAS STATION: Oil Price Fiasco to Wreck the Economy for Years!
The lives we live and societies around us are changing faster than at any other time in human history on a global scale. Predicting the future is harder now with a higher degree of change happening in much shorter order.
Taking cues from those at the top has proven to be as miserably misdirected as depending on the weather man for accurate forecasts.
Rising costs of a variety of essential goods and commodities have hit Americans hard across the wealth spectrum. From food to electronics, the price of just about everything has gone up substantially – yet there’s one area of inflation that’s wreaking havoc on the economy on a particularly deep level.
Of course, we’re referring to fuel costs, which take a measurable toll on both consumers and the businesses they buy from. For companies large and small, high gasoline prices result in greater transportation/shipping costs, which are typically passed on to consumers in the end.
Then there’s the more direct effect known as “pain at the pump.” As you might expect, elevated gas prices have a profound impact on the average American’s monthly expenses. It’s an uneven and regressive burden, with gasoline costs taking up 13.8% of the average monthly expenses for low-income households and 18.3% for the very lowest-income groups (those that earn less than $20,800 annually).
This is clearly a direct result of gas prices rising at a breakneck pace. Just a year ago, the average price of a gallon of regular-grade gasoline in the U.S. was around $3.07. It’s nearly $5 today, and in some states, it’s much higher than that:
Truckers are feeling the pinch as well, with one gallon of diesel fuel costing an average of $5.57 in the U.S. in May 2022. This represents a price increase of over $2 compared to the previous year, and it’s the highest average monthly diesel price in decades.
While this is impactful to American consumers, it also translates to a major windfall for fossil fuel producers – but also higher input costs for a wide range of businesses. Politicians can point the finger at Russia and the crisis in Ukraine, but it’s the end result of restrictive policies against drillers in the U.S.
Perhaps the current administration is engineering these high fossil fuel prices as part of a larger push toward electric vehicles. The sudden increase in gas prices might conjure images of electric vehicle owners laughing all the way to the bank, but is this what’s really happening?
Sure, Tesla owners are less susceptible to high gasoline prices, but low-income and middle-income Americans don’t have easy access to a Tesla vehicle. As it turns out, the price of a Tesla has increased in lockstep with higher fuel prices so that only higher earners can afford to sidestep the pain at the pump.
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While the Tesla Model 3 was launched with the promise of a $35,000 base price, a 2021 Tesla Model 3 cost nearly $52,000 a year ago, and the 2022 version is priced at around $64,000 today. Thus, the luxury of saving money on monthly gasoline costs can only be enjoyed by owners of increasingly expensive cars.
This brings us full circle since the input costs of electric vehicles are increasing due to higher oil prices. It requires natural resources to create these electric vehicles – the break-even costs are much higher in 2022 than they were in previous years – so these vehicles and their owners are not actually exempt from the gas-price impact.
In other words, elevated petroleum prices create a financial strain on everyone regardless of whether you drive a traditional gas vehicle or an electric car. Avoiding gas stations isn’t the same as avoiding the broad-based financial fallout of persistent policy errors that affect an entire nation, even when the decisions are made by just a few people at the top.
In a world of uncertainty we have to be rooted in what we know as certain. Assets that will be around when all else fails. To me that’s gold and silver as the base of my investment pyramid with everything else based on similar foundational fundamentals.
Chief Editor, CrushTheStreet.com
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