Higher Oil Prices Will Cost the Average American Family $440 This Year

June 29, 2018, by Erin Douglas

(Bloomberg)

The average American household will have $440 less to spend this year due to rising pump prices, putting at risk one-third of the windfall they got from tax cuts.

Strong oil prices drove the cost of U.S. gasoline to the highest level in more than three years last month, according to AAA, and pump prices are now 27 percent higher than they were a year ago.

That could disproportionately constrain low- to middle-income Americans’ spending, even if it doesn’t slow down a healthy and more energy-independent economy, according to S&P Global economists Beth Bovino and Satyam Panday.

“This would be tantamount to a tax increase for American households,” Bovino and Panday said in a report Friday. “This is especially true for middle- to low-income Americans.”

Higher-income earners who saw a larger tax break would be less affected, both because fuel comprises a smaller portion of their discretionary spending and because the recent tax cuts were skewed in their favor, they said.

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“The income tax cut is virtually compensating those who were hurt least from the oil-price change, which may result in even larger inequality,” the analysts wrote.

Strong Economy

Still, the economic picture is bright. The shale revolution, declining crude imports and shifting American driving habits have rendered the U.S. economy less vulnerable to oil-price spikes, Bovino and Panday said. Even a period of $70-$80 a barrel oil wouldn’t dampen growth.

Yet, if high oil prices spook the Federal Reserve, prompting it to raise interest rates too fast, that could be “particularly troubling” for some emerging markets and would offset the U.S. fiscal stimulus.