- U.S. gas prices are on the cusp of averaging over $4 per gallon in August for the first time
- Prices jumped 30% after Iran war began in late February and have remained elevated
- Middle East conflict is pushing up prices on a broad array of goods and services
Just days after the U.S. and Israel launched attacks on Iran on February 28, U.S. drivers saw gas prices spike by over 30% as the hostilities created widespread disruptions in the epicenter of Persian Gulf oil production and transport.
Now, on the six-month anniversary of the conflict and with only a handful of ships each day making it through the critical Strait of Hormuz, a narrow passage through which about 20% of the world’s total petroleum production travels on its way to international markets, consumer gas prices remain elevated.
And, according to tracking by AAA, U.S. gas prices are about to set a new, and unfortunate, benchmark for the last month of the summer travel season.
“For the first time ever, the national average in August has been above $4 per gallon every day,” said Aldo Vazquez, spokesperson for AAA Mountain West Group, in a press statement. “This month is poised to set a new record as the most expensive August at the pump, surpassing the previous August record set in 2022. However, Utah has not reached its record high average of $5.26, which was set in July of 2022.”
On Friday, the average price of a gallon of regular across the U.S. was $4.09 per gallon per AAA data, nearly matching the rate of a month ago but 88 cents per gallon more than this time last year. Utah drivers are seeing prices well above the national rate with a gallon of regular averaging $4.39 on Friday, up 12 cents per gallon from this time last month and $1.08 per gallon higher than one year ago.
High gas prices not the only household budget challenge
While the Federal Reserve’s preferred inflation metric was running at 2.9% in February, ahead of the start of the Iran war, it has moved up considerably since then, reflecting broad increases in the prices of consumer goods and services.
The latest Personal Consumption Expenditure Index reading from the U.S. Commerce Dept., released Wednesday, finds overall inflation was running at 3.7% in July, matching June’s annual rate but up 0.2% on a monthly basis. July’s core PCE inflation rate, which strips out volatile food and energy prices, came in at 3.3% last month, also matching the June rate and up 0.2% month-over-month.
Notable changes include a 2.7% decrease in gas and energy prices in July. Prices on clothing and groceries also saw monthly declines. Offsetting those price drops was a 0.3% increase in housing-related costs as financial services and insurance costs also moved up last month.
“The United States still has an inflation problem. PCE inflation came in hotter than expected,” said Heather Long, chief economist at the Navy Federal Credit Union, according to a report from CBS News. “The impacts of the war in Iran are still apparent with $4 gas and $5.60 diesel.”
How the Fed will respond to persistent inflation at its next policy meeting in September remains hazy, though market expectations for a rate increase have moved down in recent weeks. In a talk delivered at the monetary body’s annual retreat in Jackson Hole, Wyoming on Friday, Federal Reserve Chairman Kevin Warsh signaled the Fed’s fight to bring inflation down to its target annual rate of 2%, not seen for five years, was ongoing.
“While this summer’s (inflation) readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” Warsh said. ““We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job, our mandate and our charge to keep.”
Generally speaking, Federal Reserve rate reductions help spur economic activity by reducing the cost of debt which can promote business activities like investment and hiring. Rate hikes, which increase the cost of consumer and commercial debt, quell spending and help slow down inflationary price increases.