Drivers across the country are feeling the sting as the average cost for a gallon of gas hits the highest price since 2008 amid the Russia-Ukraine war. That’s left some analysts worried about a potential recession in the U.S.
The average cost for a gallon of gas hit $4.25 Wednesday morning—but reached over $5.50 in some places, including California—according to AAA. That’s a new high for regular unleaded gas (but it’s not adjusted for inflation). Chances are prices will go up from here, especially now that President Joe Biden has promised to ban Russian oil imports. Prices could stay elevated for months.
Americans were already feeling the pressure on their wallets thanks to record-high inflation, and rising energy prices were a large driver even before the war in Ukraine. Consumers can expect to spend more on gas just as many Americans are restarting their daily commutes as companies call them back to their offices.
More money spent on gas could mean less money to spend elsewhere in the economy, potentially stymieing growth. A combination of factors is stoking fears of a possible economic downturn, especially since the last time gas prices rose so steeply was during the 2008 financial crisis.
Before the events of the past week, economists were generally optimistic about the U.S. Economy. But ever-higher oil prices increase the risk of a recession in the U.S., putting it at one-in-three in the next 12 to 18 months, says Mark Zandi, chief economist of Moody’s Analytics.
“It seems obvious that the odds of recession are now well above average here in the United States,” Gerard MacDonell, analyst at 22V Research, wrote in a research note Monday, though he notes that high gas prices aren’t entirely to blame. Overall inflation, a labor market that could “overshoot” full employment, and the war overseas—which is behind the spiking gas prices—would be the causes.
A recession is even more likely in Europe, which imports a higher share of its oil from Russia than the U.S. Does, according to Capital Economics.
That said, not all economists are convinced that a recession in the U.S. Is imminent, and many households still have some excess savings from the coronavirus pandemic that could buoy them now, Ian Shepherdson, economist at Pantheon Economics, wrote in a research note.
“Consumers’ huge cash pile means people don’t have to cut back other spending as gas prices surge,” Shepherdson wrote.
Of course, not everyone has extra money to fall back on, and some consumers will undoubtedly cut back on discretionary spending to account for increased gas prices, particularly as inflation in other areas like food and household items has already been taking its toll.
Though they may be paying more at the pump, there is broad support among Americans for economic sanctions against Russia: According to a recent NPR/PBS NewsHour/Marist poll, 69% of Americans support the sanctions, even with the higher energy prices.