I see that the inflation pressures that I had mentioned in last week’s column have already struck American consumers (see "Rolling for Initiative"). Locally, gas prices went from about $3.79 per gallon to $4.11 per gallon within the last week, and according to CNN, the nation saw a one day jump in prices of $0.11. This the largest single day jump in price since Hurricane Katrina back in 2005, and the highest national average price since 2012. If gas prices continue to rise as they have over the past weeks, the nation can probably expect to see us pass the record national average of $4.11, set back in 2008, by the end of March.
What does the gas price increase mean to us? Well, a couple of things come to mind:
- More driving means higher prices. During the pandemic, Americans drove less. As restrictions, quarantines, and mandates have relaxed or been dropped, people have gotten out and driven more. When the pandemic was in full force, people stayed at home more and demand for gas dropped along with the prices. With more people getting back on to the road, it is only natural to see gas prices climb. Couple that with a land war in Eastern Europe instigated by the world’s second largest oil and natural gas producer (Russia), we should expect to see gas and oil prices rise further in March; barring a quick resolution to the conflict.
- Discretionary items. For most people, comics and games are a luxury, not a necessity. If it comes down to a choice between gas and picking up a copy of Boss Monster, most, but not all, of our customers will allocate their money to gas. Our customers typically have a finite amount of discretionary income that they can spend after they have bought food, water, clothing, and other items found on the lower levels of Maslow’s Hierarchy of Needs. With the current consumer price increases due to inflation, with more likely coming down the pike, FLGS are going to have to compete even harder for our customers limited amount of dollars. Luckily, most of our customers are in their 20s and 30s. This segment of our customer base may not have higher levels of income, but a higher percentage of their current income is discretionary. This means that, while they will still have to spend more money on gas, they also have comparatively few demands on their income than an older, more established individual might have (family expenses, mortgages, etc.), and will still use discretionary income for hobbies and entertainment.
- Interest Rate Increase. According to Reuters, the Federal Reserve plans to increase the interest rate it charges banks later this month. Interest rates have been close to 0% since March of 2020, as the Fed reduced them to help avoid a recession in the wake of mass shutdowns during the COVID-19 pandemic. Increasing the interest rate, which takes money out of the economy by making it more expensive to borrow, is the primary tool the Fed uses to reduce inflation. Assuming it works as expected and nations come to a resolution in Ukraine, we should see inflation return to normal by this fall. However, expect to see interest rates on credit cards to inch upwards, at least for this year.
Incidentally, if you want to make a donation to help those in Ukraine affected by the war, Trip Advisor is matching all donations to World Central Kitchen, which is providing hot meals to Ukrainian refugees.
What do you think? Am I off on my thoughts about the effects of gas prices? Let me know at email@example.com.
The opinions expressed in this column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of ICv2.com.