Questions and Answers   

Gasoline Prices: What’s Up?

While we have seen many episodes of increasing gasoline prices just in the last few years, the current surge has seen prices reach record levels. In mid-August, the national average of gas prices rose to at least $2.59 per gallon, and in South Carolina average prices rose to at least $2.47. At the same time last year, South Carolina’s average price was about $1.76. As is typically the case, this price increase has been due to some supply disruptions, rising demand for gas and oil, as well as financial market speculation and general concerns about instability in oil-producing regions.

It is very difficult to accurately predict the future course of oil and gasoline prices, but a few general statements can probably be made. First, a seasonal slowdown in demand typically occurs past Labor Day and through the fall. The seasonal pattern suggests that some relief may be coming in the next months. Second, oil-producers also get concerned about high oil prices. This may seem odd at first, but while higher oil prices can help the bottom line in oil-producing nations, the members of OPEC also do not want high prices to destabilize the global economy which would lead to lower demand. Therefore, there may be some actions to boost production in order to mitigate the price increase. Finally, though, it often is the case that prices fall more slowly than they rise. Even if the coming months do bring some relief, any drop in prices is likely to be relatively slow.

So far, the economy has weathered the high gas prices fairly well. The national economy has been growing quickly such that the negative impact of higher energy prices has had only a small impact on economic growth. In this sense, the economy has been very resilient. However, this resiliency likely has its limits. If prices continue to rise and stay high for a prolonged period, then we should expect a greater toll on economic growth.

Return to Questions