We have good news and bad news about gas prices

New York (CNN Business) – There is good news and bad news regarding the price of gas. Good news: There may be some price relief on the way. The bad news: Traders are betting on a recession.

In simple terms, there are two ways to lower prices: increase supply or decrease demand. The first is expensive and complicated. The latter occurs when consumers start to fall back on because prices have skyrocketed and individual budgets are limited. That appears to be what happened this spring, as Americans saw gasoline prices rise above $5 a gallon and headline inflation rose to its highest levels in four decades.

While this could mean fuel pump relief, it could also signal a different kind of economic pain on the horizon.

“This morning’s market moves have recession alerts written all over,” wrote Peter Bokfar, chief investment officer at Bleakley Advisory Group. He estimated the odds of a recession this year at 99% because “nothing is 100%”.

Oil prices jumped to $122.11 on June 8, their highest level since March and nearly a dollar below their highest level since 2008.

In just two weeks since that peak, oil prices have fallen 16%. why? It’s inflation, again, and the Fed’s campaign to fight it.

Recession fears

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Consumer confidence has slumped to a record low as consumer frustration with higher prices grows, according to a closely watched survey released on June 10.

On the same day, the government’s main inflation gauge, the Consumer Price Index, saw its biggest jump in 40 years, with prices rising 8.6% in the twelve months to May. That was higher than the April reading, not the trend anyone expected.

This mix of bad news more or less ensured that the Federal Reserve would have to raise rates more aggressively than it previously indicated, a fact that has rattled investors and sent stock markets into a meltdown.

When central banks raise interest rates, it slows economic activity, reducing energy demand, causing gasoline prices to fall (albeit slowly).

Over the weekend, American drivers got a small price cut, while the average AAA gallon of unleaded gasoline fell below $5 after peaking at $5.02 a gallon last week. That price has fallen by a fraction of a penny every day since then.

On Wednesday, oil prices continued to slide even after the Biden administration said it would urge lawmakers to suspend the federal gas tax of 18.4 cents per gallon in an effort to ease prices, an expected action that would be bullish. on demand

Brent crude, the international benchmark, fell 4% to about $109 a barrel on Wednesday. US benchmark West Texas Intermediate crude fell 4.5 percent to $104 a barrel.

Gasoline prices have fallen much more slowly than they have been rising, confirming the adage that prices rise like a rocket and fall like feathers. Over the two months prior to last week’s high, the average AAA price reading increased 58 times in 60 days, adding 94 cents to the national average. That’s a steady rise of about 2 cents a day, compared to less than a cent a day the price has fallen since Tuesday.

This article was contributed by Chris Isidore of CNN Business.

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