Gas prices are finally dropping. Here are 4 things to know
- Written by Scott Horsley
- Category: National News
- Published: 06 August 2022
Listen to the Story (00:03:36)
Filling your gas tank is not as painful as it used to be.
Gasoline prices, which hit a record high earlier this summer, have fallen sharply in recent weeks. They are now below $4 a gallon in parts of the country, even as the national average remains above that level.
That's a relief for drivers – and for inflation, which hit a four-decade high in June.
How much have prices fallen?
According to the American Automobile Association, the average price of gasoline nationwide was $4.08 on Saturday. That's down nearly a dollar since mid-June, when pump prices hit an all-time high of $5.01 per gallon.
Some parts of the country, like Texas, have seen an even sharper decline, providing relief for drivers who had seen prices surge earlier this year following Russia's invasion of Ukraine.
"I filled up yesterday and it was $3.35. So yeah, I was excited about that," says Linda McDaniel, who drives 60 miles every day to her job in San Antonio. "Because I have such a commute, I drive a Honda Civic, which gets pretty good gas mileage. But with those bigger prices, it was really costing a significant amount more to fill up my tank."
What's behind the sharp drop in gasoline prices?
It's partly a function of supply and demand.
When pump prices topped $5 a gallon, drivers adjusted their behavior, trying to limit how much they drove. They car-pooled, combined errands, and cut out unnecessary trips.
McDaniel actually canceled a road trip to Colorado this summer.
Gasoline consumption in the U.S. has been about 9% lower in recent weeks than it was last summer — a pretty dramatic drop in demand.
At the same time, domestic crude oil supply has increased more than 6% from a year ago.
Growing concern about an economic slowdown around the world has also weighed on crude oil prices, which account for about half the cost of gasoline.
All of this is a recipe for lower prices at the pump.
"Americans collectively are going to spend $340 million less on gasoline today than they did on June 16th when prices peaked," says petroleum analyst Patrick De Haan with the price-tracking website GasBuddy.
What does this mean for inflation and the cost of things?
The fall in gas prices will certainly help in terms of the cost of living.
Annual inflation in June hit 9.1%, the highest since late 1981, and gasoline prices have been a big driver of that increase.
The problem is that other prices have been climbing too, including some that are stickier than gasoline, which tends to bounce up and down.
McDaniel, for example, rents a couple of storage units and says the rent has increased by $100 a month. She's also concerned about her utility bill, since her air conditioner has been working overtime in the Texas heat.
"It's been in the 100s since May," McDaniel says. "So the electricity bills have been out of this world."
So far, consumers have seen little break in the cost of groceries or housing, both of which account for a larger share of the typical family budget than gasoline.
So while many drivers will be grateful for cheaper gasoline, it's not a cure-all for inflation.
"Yes, it is welcome relief," McDaniel says of gas prices. "But I mean, you can definitely see [inflation] in just about everything. Like in our soda machine, the price went up 25 cents overnight. Just every little thing you notice goes up. Even a pack of gum went up 20 cents."
Where do gas prices go from here?
Pump prices could fall further in the near term, but it's harder to say what will happen later this year.
De Haan, the GasBuddy analyst, predicts the average price of gasoline nationwide will drop below $4 a gallon in the coming days.
But he warns, there are some wild cards out there. A hurricane in the Gulf of Mexico, for example, could knock out drilling rigs or refineries, crimping gasoline supplies.
Geopolitical threats in Europe or Asia could also send gas prices climbing again.
All that makes it hard to say if the relief at the pump is here to stay.