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Some inflation is good, since it indicates strong demand for products after the forced misery of a pandemic year stuck at home. But certain types of inflation should scare politicians.
The rising cost of gasoline is one of them. Gas prices have an outsized impact on consumer psyches, since drivers see the price in foot-high numbers everywhere they go and count the drain as their wallets shrink. The higher cost of getting around somehow cramps Americans’ sense of independence, souring them on whoever happens to be in charge.
Gas prices now average around $3.15 per gallon nationally, about a dollar more than they were a year ago. That’s not terrible. Gas prices were artificially depressed last year, since everybody stopped moving. And $3.15 is only about 20 cents higher than the average during the last 10 years.
Next year could be the problem, however. Bank of America recently predicted that oil prices could hit $100 per barrel in 2022, for a number of reasons, including pent-up demand for travel, people shying away from mass transit, and social and regulatory pressure to emit less carbon. “Demand is poised to bounce back and supply may not fully keep up,” BofA analysts conclude.
Oil at $100 could equate to gas prices close to $4 per gallon. The last time oil hit $100, in 2014, gas prices peaked at $3.75. The record high for gas prices, $4.17, came when oil hit $145 in the summer of 2008. The price correlation between and oil and gasoline has changed a bit, and not in a way that favors consumers. Most states have raised gas taxes, and refiners face new rules that add cost. There’s also a shortage of drivers for the trucks that deliver gas to filling stations, another cost booster. “One-hundred-dollar oil today could get us close to the $4 per gallon mark,” says petroleum analyst Patrick De Haan of GasBuddy.
Blaming Biden for rise in gas prices
The $4 threshold is an unmistakable pain point for drivers—though many may not care too much this summer, when they’re happy to be free to hit the road. As with other things that have gotten more expensive, consumers who have been saving money and awaiting their Covid vaccines may pay without remorse, grateful for the freedom to leave home.
Consumers have short memories, however, and a sustained boost to gas prices would pose two threats to President Biden and his fellow Democrats. The first involves the 2022 midterm elections, when Democrats will have a tough time holding onto their narrow majorities in the House of Representatives and the Senate. Biden has solid approval ratings now, with Covid vaccines and a recovering economy boosting confidence. But 12 or 15 months from now, vaccine euphoria may be over.
Republicans are already blaming Biden for the rise in gas prices during the last few months. That’s a bogus charge. Gas prices are typically volatile and they move in response to global economic forces, not the political policies of any one politician. Still, as we’ve all learned, veracity matters less in politics than the ability to hurl a charge and make it stick. If Biden were to answer this claim by saying it's overblown, it might sound tone-deaf to voters concerned about higher driving costs.
There’s another, longer-term risk to Biden’s agenda. Biden is pushing the most aggressive green-energy program of any president in U.S. history, with the goal of eliminating carbon from the power sector by 2035 and from the entire economy by 2050. The goal is technologically challenging and would require a rapid and possibly disruptive move away from fossil fuels toward newer technologies.
Fossil-fuel advocates hoping to slow-roll this transition argue that new forms of energy will raise costs for consumers. The evidence suggests otherwise, with the cost of renewables plunging during the last few years. Still, rising gasoline costs amid Biden’s green-energy push would be a correlation political foes would eagerly exploit to argue that Biden’s plan is costing consumers money. Even if false, it could weaken support for Biden’s climate plans.
It could turn out that gas prices aren’t a problem any time soon. The cure for high oil prices, famously, is high oil prices: As margins rise, producers bring more supply to market, which in turn lowers prices. The BofA study, in fact, sees prices coming back down in 2023. That would be a year too late for Biden, however.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.