Pain at the Pump: Will America’s Strategic Oil Reserve Ease Cost?

It’s no surprise that inflation, near 8.5%, is hurting average Americans where they feel it the most; at the gas pump.

According to 247 Wall St, the average car driver in America spends 2.24% of their monthly income on gas, while pickup and SUV drivers spend 3.12%. As inflation continues to rise, President Biden has made actionable steps to ease the increase in prices, but is it enough?

The Washington Examiner points out that March 2022 had the highest inflation rate America has seen since 1981 – not good news for the President’s approval rating. Still, his promise to tap America’s Strategic Petroleum Reserve brought a great sigh of relief to many, at least for a moment.

White House Official Statement

“We expect March [inflation data] to be extraordinarily elevated due to Putin’s price hike,” White House Press Secretary Jen Psaki said on Monday, April 12, 2022. That didn’t sit well with many average Americans, who saw inflation rising long before the Russian invasion of Ukraine.

According to The Mercury News, President Biden plans to continue using the strategic oil reserve for six months, hopefully allowing things to calm down between Russia and Ukraine and ensuring Americans can withstand the ever-increasing inflation.

Based Politics offers a different perspective on why inflation keeps surging and why gas prices aren’t the only commodity seeing a massive increase – blaming the Federal Reserve for flooding the economy with cash reserves. The increased money supply leveraged a significant impact on inflation.

Now that many of the mandates concerning the pandemic are no longer in effect, Americans are returning to regular spending habits that will substantially affect inflation.

Not All Cut and Dried

It’s easy to point the finger at the federal government as the source of all the inflation factors, but it’s not nearly that simple. As The Conversation points out, there are several concerning factors that are, in part, responsible for the inflation numbers we’ve seen in early 2022.

• Spending Spree – As the pandemic is on the way out, many Americans are back to work, which means steadier income and increased spending. While this spending stimulates demand, prices rise if the supply can’t meet the demand.
• Supply Chain Issues – When the pandemic was raging, it threw everything into chaos from a manufacturing standpoint. Suddenly production ground to a halt as no one was buying anything beyond essentials like toilet paper and hand sanitizer. Now that the economic engine is chugging along again, meeting the new demand for material goods is taking some time to become a well-oiled machine again. This kink in the supply chain is causing prices to rise and stay high.
• Increasing Wages – As people start going back to the office or a hybrid working situation, companies are raising wages to find the best workers. This increase is significant for incoming workers, but that cost to the company’s bottom line usually gets tossed back to the consumer who purchases goods the company produces. This income increase is also causing prices to rise significantly.

Inflation Can Be Good

When the word inflation gets thrown around, it’s easy to think that it’s always negative, but that’s not always the case. Natural inflation over some time is reasonable. A rise of 1 or 2% in prices over ten years is an intrinsic part of economic growth.

However, anything over 5%, even for a short amount of time, can lead to noticeable inflation that hurts the economy. When an economic system runs over 5% for an extended amount of time, it can lead to what experts call, ‘hyperinflation.’

Hyperinflation is the phenomenon that occurs when people expect prices to keep rising, which fuels more inflation. This cycle causes a country’s currency to lose value, stripping buying power for every ‘dollar’ a person makes. So suddenly, bread and milk cost four or five times what was normal six months prior, and just putting food on the table becomes difficult.

Indicating Factors

While rising gas prices and higher food costs aren’t the only indicators of a problematic economic session, they certainly get people’s attention. Going from a 50-dollar fill-up to somewhere around $100 or more will dent your budget for gas and make it even more challenging to choose between food, fun, and gas to get to work.

President Biden’s policy to tap America’s oil reserve might ease gas prices. Still, if the bigger problem of continually rising inflation isn’t solved, prices at the pump will continue to rise along with other goods and services. If the government can’t get a handle on inflation before it spirals out of control, Americans might be in for a suffocating and stagnate summer to start.

Originally published at Wealth of Geeks

By Trey Thoelcke