The price of a gallon of gas has gone to where it’s never been before: $5 a gallon.
According to the site Gas Buddy, the average price for a gallon of gas nationally hit $5 on Thursday. AAA’s gas price tracker, meanwhile, does not quite get to that level, saying the average is $4.97.
Either way, gas is more expensive than it’s ever been, at least unadjusted for inflation. And drivers in many states are paying well over that.
In California, gas is $6.40 a gallon, according to AAA. The average is at least $5.50 in several other states, including Washington, Oregon, Nevada, Arizona, Illinois, Indiana and Michigan. Overall, gas prices are up by about 60% over the past year.
Gas prices are rising for a variety of reasons, namely global uncertainty due to the war in Ukraine that has sent oil prices soaring. Oil prices have doubled over the past year, for instance.
But demand has remained generally high despite rising gas prices. Demand had been slowing in March and April when prices spiked, according to data from the Energy Information Administration. But it has been steadily increasing since, from an average of about 8.6 million barrels a day in early April to 9 million last week.
The big question is whether consumers will react. Hitting $5 a gallon on a national level may be a psychological barrier, even though consumers in many states already pay more than that and those in others pay less. There are already signs that rising inflation is taking its toll on the consumer psyche, at least according to surveys. Consumer confidence dipped in May, according to The Conference Board.
The Conference Board also noted that consumers say they are less likely to buy major items like cars, homes and major appliances. And their vacation plans have cooled, too. And all this was before prices hit $5.
There are few indications, however, that this is all impacting restaurant sales, at least not yet. Earlier this week, Sandra Cochran, CEO of the highway-side dining chain Cracker Barrel, said the company believes rising gas prices interrupted spring break travel, which led to reduced visits from vacation-bound drivers, according to a transcript on the financial services site Sentieo.
Federal retail sales data indicates that overall restaurant sales have remained robust, at least through April (May numbers are not ready yet), with little demonstration that gas prices are lowering industry sales.
According to Black Box, restaurant sales have largely stabilized at a rate higher than a year ago in recent weeks. Traffic overall remains down, however, as consumers continue to visit less often but spend more when they do. But traffic did improve during the last week of May.
Darin Harris, the CEO of the fast-food chain Jack in the Box, suggested this week that rising gas prices are offsetting the benefit restaurants would normally get from high grocery price inflation. Generally, restaurant sales increase when prices rise faster at grocery stores—and retail food prices are rising by about 350 basis points more than they are at restaurants. “You usually get the benefit of that,” Harris said, according to Sentieo. “But then gas prices bring it back.”
There have been concerns in recent weeks about the state of lower-income consumers. Large chains like McDonald’s have mentioned that, as have retailers such as Walmart.
But again, it will take some time to see whether rising gas prices will impact consumer spending. The higher gas prices today are not insignificant: A driver who uses 20 gallons a week is spending about $99. Last year they spent $66. Add that to rising food prices and the cost of roughly everything they buy, and many consumers will naturally begin rethinking what they do. As gas prices roar past $5, they may well take more serious actions.