You may not want to hear this, but rising prices at the gas pump are actually a sign of economic recovery.
Gasoline prices in California reached a 14-month high in the week ending March 1, according to the U.S. Energy Information Administration. A gallon of regular gas cost an average $3.56, up 11 cents in seven days and 92 cents higher than the pandemic low of $2.64 last May.
Successful steps to slow the virus — including vaccinations — brighten the business outlook and motivate consumer spending on numerous things, including gasoline. Pump prices are up 35% to a high not seen since December 2019. And you’ll likely see more inflation for other consumer goods as the global economy shakes off pandemic pain.
Please note that fuel’s recent price upswing is not exclusive to the Golden State. Nationally, gasoline costs rose 8 cents in a week to $2.90 a gallon, the 14th consecutive jump, and are up 44% since last May’s lows.
The fact that we are pondering higher costs shows we are a long way from last spring when gas prices tumbled 21% in two months. Cheap fuel was a rare bright spot in 2020’s throttled economy — at least, for those who were driving.
A world of strict business restrictions designed to limit the spread of coronavirus hammered many industries. Travel — by ground, air, and sea — nearly halted, and “stay at home” translated to slashed demand for fuel around the planet.
A year later, such business limits have now dramatically eased. In turn, Californians have watched prices at the pump increase for 11 consecutive weeks.
It’s relatively simple economics. More folks back in workplaces and schoolrooms mean more driving. Let’s ponder renewed traffic as measured by the TomTom Index.
In Los Angeles, for example, the worst congestion in the last week of February ran 27% above the norm vs. 11% last April amid a lockdown. Yes, it’s still down from 42% in the good ol’ days — for all of 2019.
Similar trends are seen in San Francisco where traffic was 20% above normal in February vs. 8% last April and 36% in 2019.
That kind of traveling resurgence on a global scale makes crude oil, gasoline’s key ingredient, soar in price. Worldwide demand for energy is booming.
Consider the ups and downs of one widely watched energy industry benchmark, the commodity market price of West Texas Intermediate crude oil. It’s up 30% so far this year to $62 a barrel. Last May, in a trading oddity that reflected the huge uncertainties of that period, this oil price fell below zero when supply far exceeded demand and storage space.
I suggest imagining your local gas station’s signage as an economic scoreboard of sorts. The same is true of your favorite navigation app once again showing plenty of red “jammed” roads.
Then smile. Pricier fuel and renewed congestion equal better economics.
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