Three effects of higher gas prices

by: , Portfolio Strategist, New York Life Investment Management

Summer is just around the corner, which means it’s time to start planning those summer vacations. But, some may want to think twice before planning that long road trip.

Average U.S. gas prices are climbing, and summer gas prices are predicted to spike to the highest level in four years. Parts of the increase are attributable to seasonality, higher taxes, and wider retail margins, but a large portion of the rising gas prices are attributable to changes in crude oil pricing, driven by accelerated economic growth.

The U.S. Energy Information Administration (EIA) estimates that average U.S. gasoline prices could exceed $3.00 per gallon by the start of the summer. Here are three takeaways, given higher prices:

U.S. average national gasoline price

Source: Bloomberg, as of 5/16/18.

1. Smaller slush funds

This year, particularly this summer, higher gas prices may weigh on consumers, especially lower-income households, who spend a disproportionately greater amount of their income on gasoline and heating oil. Fortunately, however, personal tax cuts have provided an extra tax buffer to help mitigate the effects of the rising costs.

Some estimates suggest that U.S. gasoline at $2.90/gallon would effectively wipe out the tax cut for the bottom third of income earners, and reduce the total benefit of personal tax cuts by half. The combined effect could mean less discretionary spending.

2. An active manager’s opportunity

Some consumer-related sectors are more exposed to swings in gas prices than others. An active manager may be able to align themselves with sectors that will be less vulnerable to higher gas prices.

3. More positives than negatives

Consumers take a hit from higher gas prices – offsetting some of the tax benefits. Despite higher prices, however, household spending is still solid and retail sales are up, driven by a favorable labor market (low unemployment and rising wages), low debt service costs, and positive sentiment. Business capital expenditures and increased government spending, meanwhile, remain very supportive of continued growth.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. New York Life Investments does not guarantee their accuracy or completeness, nor does New York Life Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

About Risk

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

Neither New York Life Investment Management LLC, nor its affiliates or representatives provide tax, legal or accounting advice. Please contact your own professionals.

Active investing is an investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions. Active management typically charges higher fees. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. There is no assurance that the investment objectives mentioned will be met.

New York Life Investments is a service mark and name under which New York Life Investment Management LLC does business. New York Life Investments, an indirect subsidiary of New York Life Insurance Company, New York, New York 10010, provides investment advisory products and services. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Robert Serenbetz

Portfolio Strategist, New York Life Investment Management

Robert Serenbetz is the Portfolio Strategist with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group. He contributes to investment thought leadership and communication efforts across New York Life Investment Management

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