"Gas prices are plastered everywhere, making it the most powerful political and psychological signal about the cost of living. Any spike in prices would compound the pressure on Americans' budgets and further sour their perceptions about the economy."
"At worst, it actually re-accelerates headline inflation and seeps into expectations. Energy feeds transportation costs. Transportation feeds goods prices. And suddenly, what looked like a steady glide path lower becomes another plateau."
"We were just starting to have a serious conversation about whether inflation was sticky or merely stubborn. A lasting energy shock could change that narrative."
Trump's trade policies imposed steep import taxes to level the playing field, but resulted in higher prices for consumer staples. Gas prices have provided deflationary pressure, declining over 7% in January year-over-year, helping control overall inflation. However, Middle East turmoil threatens to reverse this trend through crude oil price increases. A $10 rise in crude oil translates to approximately 24 cents in gas price increases. Gas prices significantly influence consumer psychology and inflation expectations. For decades, rising gas prices have correlated with increased consumer inflation expectations, though this relationship weakened last year when gas declined but consumers still expected higher inflation due to tariffs. An energy shock could re-accelerate headline inflation and shift consumer expectations upward.
Read at Axios
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