https://www.newsweek.com/-By Anna Skinner
A nozzle pumps gasoline into a vehicle at a gas station in Los Angeles on October 5. Saudi Arabia, Russia and other top oil producers agreed on a major cut in production on Wednesday to boost crude prices—a move denounced by the United States as a concession to Moscow that will further hurt the global economy. Photo by FREDERIC J. BROWN/AFP via Getty Images
Rising gas prices are sure to strike Americans in their wallets, but some experts expect the return of high gas prices to have a more overarching effect on the U.S. economy.
The Organization of Petroleum Exporting Countries (OPEC) decided to cut oil production by 2 million barrels a day Wednesday, and the effects are already being felt in the U.S. Gas prices are starting to rise again, leading to increasing anxiety from Americans who have struggled with the effects of inflation this year. In addition to gas prices, grocery store costs continue to rise and the Federal Reserve recently hiked interest rates again. Much of the nation doesn’t expect inflation to improve anytime soon, and the OPEC decision could lead to a worsening American economy.
“There’s no question this will contribute to the inflation we’ve been experiencing,” University of Notre Dame finance professor Jeffrey Bergstrand told Newsweek.
OPEC’s decision is already leading to short-term increases in gas prices across the nation. As of Thursday, the American Automobile Association (AAA) put the national average for gas prices at $3.86 per gallon, roughly 10 cents above the average prices a month ago. The European Union is considering a price cap to address OPEC’s production cut. Depending on the global response, steeper gas price increases could come in a few months.
Bergstrand said a large factor to the U.S. inflation over the last year has been influenced by oil prices and consequently, gasoline prices. He said the increasing gas prices could not only exacerbate inflation but also increase the likelihood of a recession as the Federal Reserve needs to increase interest rates to curtail inflation.
“Also is the probability of a more prolonged recession because the Federal Reserve is committed to getting the inflation rate, including energy prices, down to a 2 percent annual rate,” Bergstrand said. “Anything such as this that raises the costs for consumers and producers makes whatever recession that unfolds over the next year even more severe.”
Clay Seigle, director of global oil service with Rapidan Energy Group, expects another gas price hike will likely be a “very important concern” of the Biden administration.
“We could have a repeat of what we saw in the summer when the national average [for gas prices] gets to $5 a gallon,” Seigle said. “That is slowing down economic activity more than if we didn’t have an increase. We are very concerned about the possibility of another gasoline price spike driving down economic activity here, complicating the work of the Federal Reserve and its campaign.”
Gas price averages remain a far cry from the national high of $5.01 per gallon in June. California has the highest rates in the nation at an average of $6.42. Mississippi has the lowest average price of $3.15 per gallon.