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Gas Prices Are Headed to $5.15. Where Will They Go Next?

Source: Carsten Reisinger / Shutterstock.com
Gas prices continue to climb across the United States. Now, Axios reports the country may soon hit a national average of $5.15 per gallon. Drivers are attempting to cope with rising fuel costs by dr…

Source: Carsten Reisinger / Shutterstock.com

Gas prices continue to climb across the United States. Now, Axios reports the country may soon hit a national average of $5.15 per gallon. Drivers are attempting to cope with rising fuel costs by driving marginally less and buying at low-cost stations, but they’re likely counting on the government to lower prices amid inflation.

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Last week, the U.S. saw a 5% decline in gas pumped compared to the same week a year prior. This drop is surprisingly small, given that gas prices have soared from around $3 per gallon last year to an average of $4.72 yesterday. It seems that, despite rising fuel costs, Americans aren’t slowing down consumption proportionally. That reflects gasoline’s inelastic demand.

Per CNN, the average U.S. household consumes about 90 gallons of gas per month. That means today’s elevated prices are costing roughly $150 more per month, compared to last year. Gas is now priced 32% higher than the day before the Russian invasion of Ukraine.

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President Joe Biden has taken several steps to ease prices at the pump. This includes the largest-ever oil release from the Strategic Petroleum Reserve in March. The effort seems to have had little effect on prices so far, however.

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Gas Prices Soars Amidst Mounting Recession Fears

While the Federal Reserve and Biden have repeatedly prioritized lowering prices, it’s still a balancing act. Raising interest rates too aggressively could slide the economy into a recession. As such, fuel costs can serve as a sort of barometer to determine the impact of impending interest rate hikes. In turn, that can inform how close the U.S. is to a recession.

Mark Zandi, Chief Economist for Moody’s Analytics, commented on the relationship between fuel prices and economic prosperity in the country.

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“The rule of thumb is for every $10 increase in price of a barrel of oil, it shaves one-tenth of a point off GDP […] I think oil and gas prices play an outsized role in people’s thinking about the economy, and their own financial situation […] With oil prices at $115 a barrel, it’s very uncomfortable […] At $130 a barrel, we’re on the edge. If it gets to $150, I don’t think there’s any way not go to into recession.”

One recent Forbes report predicts gasoline could hit $6 per gallon by the end of the summer. Investors, analysts and drivers across the country will be keeping a close eye on the pump going forward.

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On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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The post Gas Prices Are Headed to $5.15. Where Will They Go Next? appeared first on InvestorPlace.

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