It may sound hard to believe, but one month from today marks the Saturday of Memorial Day Weekend. Memorial Day weekend typically marks the start to the summer driving season, so it is a time of year where gas prices increasingly become an area of focus. If you are planning to do much driving this year, though, you are in for a pleasant surprise at the pump when you go to fill up. Looking at the YTD change in gas prices so far this year, prices are only up 2.4%, which is the most anemic price increase at this point in the year we have seen going back to at least 2005. Since then, there have only been three other years where the YTD change through 4/26 was less than a double-digit percentage gain, and the average YTD change at this point in the year is 17.8% (median: 17.5%), so 2.9% is nothing!
While prices could certainly go up from here, if they follow anything close to the seasonal pattern, the window for price increases is rapidly coming to a close. The chart below compares the current YTD change in gas prices to a composite of the YTD change in prices for all years since 2005. As shown, prices typically rise in the first half of the year, peak in early June, move sideways for the summer, and then rapidly decline from Labor Day through year end. Therefore, if prices don’t increase much between now and early June, barring a major hurricane in the Gulf or a geopolitical shock, they are unlikely to get much of a lift in the summer.
As far as the inflationary impact of gas prices in concerned, any upward pressure is likely to be contained going forward. The chart below shows the y/y change in gas prices since 2006. The surge in the y/y change that we saw towards the end of 2016 was similar to increases that we saw in other commodities and was a big contributor to the upward pressure in CPI. However, now that the base effects that contributed to the upward move in the CPI are running off, the pace of increase in y/y readings is quickly declining. After peaking out at a 34.55% y/y change in late February, gas prices are now up a relatively modest 11.7% y/y.