Americans are paying more at the pump after the conflict with Iran sent oil markets sharply higher and disrupted shipping through the Strait of Hormuz, a critical artery for global energy supplies. And gas prices are expected to remain elevated at least until the end of the year, even if a peace deal is quickly reached with Iran.
Since joint U.S.-Israeli military action began on Feb. 28, crude prices have climbed more than 30%, according to the U.S. Energy Information Administration. On April 21, AAA put the national average price for regular gasoline at $4.02 a gallon and diesel at $5.51 — both well above year-ago levels, with diesel showing the bigger jump.
The rapid rise in fuel costs is already showing up in the broader economy. The Commerce Department reported that U.S. retail sales rose 1.7% in March, but much of that increase came from gas station receipts as consumers spent more to fill their tanks rather than buying substantially more goods.
That matters beyond the gas station. Diesel is the main fuel for trucks, rail freight and much of the farm and industrial economy, so higher diesel prices can filter into grocery bills, delivery charges and other household expenses.
The average U.S. diesel prices had surged above $5.60 earlier this month, while the EIA said diesel prices were expected to peak above $5.80 in April. The agency also projected gasoline would average about $4.30 a gallon this month before easing later in the year if conditions stabilize.
Economists say the near-term picture is mixed.
Higher fuel prices can temporarily inflate retail sales totals and lift some energy-sector activity, but they also squeeze family budgets and can dampen spending on restaurants, clothing and other discretionary purchases.
Consumer sentiment fell to a record low in April as households absorbed the shock of higher energy costs and broader economic uncertainty. In that sense, the fuel spike is acting like a tax on consumers: more money to keep cars and trucks moving, and less left over for everything else.
Guest:
Michael Negron is the Senior Fellow of Economic Opportunity at the Center for American Progress.
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