Economists say that while gasoline prices have risen to $5 per gallon in the U.S., consumers still feel the pinch. However, the price of gas is not at an level that could cause a severe recession.

The exact location of the breaking point price is unknown. Others suggest that it wouldn’t be gasoline alone that could send the economy spiraling. However, economists agree that it is possible to go into recession if the fuel price rises even further and stays there for long periods.

According to AAAThe national average price for unleaded gasoline in a gallon was $4.97 on Thursday. This is an increase of 65 cents over a single month.

The fact that prices are increasing at other places is compounding the problem. inflation this spring running at an 8.3% paceThis is an increase of 5% over the previous year. Increasing natural gas prices have led to higher energy prices overall, and food prices are rising.

Harrison Fells is a senior researcher at Columbia University’s Center for Global Energy Policy. He said, “I believe we are in an extremely extreme situation right now.” “I doubt many economists will argue that sustained $5 gasoline prices would have very little impact. Most economists would agree that sustained high prices with no policy interventions would cause economic harm. It’s not clear if it is enough to cause a recession.

Gas prices have been rising at a rapid pace, so economists are closely following the situation. Drivers are aware of rising fuel costs and how it can affect consumer sentiment and inflation expectations.

But economists say that the increased wages and strong labor market provide protection against rising prices. Contrary to 2008 when oil prices soared, and the economy plunged into recession, today’s consumers are much healthier.

While there are obvious shocks and consumer budgets are under pressure, good news is that there is some support through the strong labor market, as well as the remaining surplus savings. Michelle Meyer, Mastercard chief economist in the U.S., stated that 2008 saw zero savings.

The 2008 household balance sheet was weak and the consumer debt load high. There was little savings. … Meyer explained that price shocks were much more difficult to handle.

Mastercard SpendingPulse shows that gasoline stations have seen a 30% increase in nominal consumption in the last few months, as compared to 2019.

Meyer points out, however, that while gas prices rose in the past two months the nominal growth of spending remained stable. According to Meyer, this indicates that gasoline prices have risen in the last two months but consumers have reduced their consumption of gasoline while spending the same amount.

There has been a pullback in actual consumption and usage. This means that people are struggling to make decisions and to determine how to budget their money,” she explained.

There are also more electric and hybrid vehicles and vehicles that are fuel-efficient. Another difference is between 2008 and 2008. You can also commute more easily with more people who work remotely and those who are only able to be there part-time.

Meyer stated that it felt very different for the average individual depending on their exposure to gas prices.

Moody’s Analytics chief economist Mark Zandi stated that while the economy has been stable, signs have shown that gas prices are causing a problem. Some automakers have been affected by this, for instance. reported sharp sales declines in May,A month in which gasoline prices rose rapidly. These declines were especially noticeable for large sales of sports utility vehicles.

That would suggest that gas may be playing an important role. The demand-side driven aspect of the indicator was more important than supply. “That’s my most worrying indicator out of all the ones that I can see,” he stated.

Economists closely monitor consumer behavior to identify changes. Consumers are also taking on more debt, as credit card usage has been increasing in recent years. Zandi explained that “it feels like lower-income households are beginning to borrow.”

Zandi doesn’t see gasoline reaching a level that is restricting the economy from growing, nor does he expect an economic recession in this year.

“I do not believe we are there yet. We could get down to $6 or $5.50, which would make it comparable with $150 per barrel. We’re finished, I believe. He stated that we are in for a severe recession. It would be impossible to handle. If we didn’t stop there for too long, I believe we can digest $120.

According to him, oil prices could rise from current levels and fall below $100 per barrel in the next year. This would reduce gasoline price pressure.

“The economy is certainly on thin air here. He said that we need to have some luck with oil prices. Zandi stated that he believes there is a chance of recession within the next twelve months and nearly as much for the next 24.

Americans spend more money on travel and entertainment than ever before due to skyrocketing gas prices. This determination to get back to regular activities may be keeping gasoline demand higher that it was before rising prices.

The pandemic brought about some good savings. It seems that people are better equipped to deal with higher fuel prices. Fells explained that the higher gas prices are being offset by the increased demand for travel.

Additionally, the gasoline prices have not reached their peak in 2008. This is when they are adjusted for wages.

Sarah House is a senior economist at Wells Fargo. She estimates that June gasoline will cost $4.84 per gallon. House stated that prices must reach $6.41 per g to make this equal to 2008’s levels. House was referring to a wage-adjusted basis.

House stated that it would take more than higher gasoline prices for the economy to fall into recession. House stated that although we have slowed down, the number of new jobs is remarkable.

One caveat was the fact that gasoline is adding to consumers’ inflationary burden.

She said that “it’s just one more straw in the camel’s rear” and it doesn’t make it any easier to have an unanticipated shock knock the economy off its feet. House is skeptical about the possibility of high energy costs. inflation has peaked, unlike some economists.

Gas prices can go so high!

After Russia’s invasion of Ukraine in March, oil prices reached an all-time high at $130 per barrel. However, they dropped again. Crude oil prices have been rising again, and may rise further if there are more European sanctions against Russia and China on Russian oil. West Texas Intermediate crude futuresThey were at just below $122 per barrel Thursday.

While gasoline prices are rising with oil, there’s also less available than usual due to a decrease in global refinery. Refining capacities in the United States are down by 1 million barrels per day from pre-pandemic levels, mainly due to shutdowns and outages.

Analysts at JPMorgan expect gasoline could top out at a price of $6.20Analysts expect that the maximum price will be $0.50 per gallon, however it is expected to rise by August. stay closer to $5.25 per gallon because drivers will likely cut back.

Patrick DeHaan from Gas Buddy is the head of petroleum analysis. He said that driving demand dropped over Memorial Day Weekend, which marks the beginning of the summer driving season.

Energy Information Administration reports that drivers used 8.98 millions barrels per day of gasoline during the week before the holiday weekend. The same amount was used last year at 9.2 million barrels per hour. The equivalent period saw drivers consume 9.4 million barrels each day in 2019. 

DeHaan indicated that the price of gasoline is almost at its peak. However, all bets can go wrong if supplies are disrupted.

We’d be able to go up to $6 if there is a hurricane. “Normally, a peak can be a lot more prescient than it is this years,” he stated.