As inflation continues to rear its ugly head, largely propped up by elevated fuel costs, a growing number of economists and analysts are considering the effects that a recession may have on prices for what Americans consume most. So, do gas prices go down in an economic downturn?
According to many experts, likely yes. But it may not come as the immediate relief some are looking for. While a recession may result in lower gas prices, it’s hard to consider it a 1:1 tradeoff. For most Americans, the downsides of a recession would still outweigh the benefit of easing gas prices.
The Great Recession in 2008 resulted in a more than 60% discount on gas, to $1.62 per gallon. But, for the 3 million Americans who lost their jobs — or the millions more who experienced sharp pay cuts — the easing prices didn’t come as the breath of fresh air many had hoped.
Do Gas Prices Go Down in a Recession?
The logic behind a recession pushing down gas prices is based in economics. When the economy falls, demand for things like travel tends to diminish. Should that happen, gas prices will naturally ease back down to reflect the shrinking gap between supply and demand.
Now, it’s not an exact science. After all, gas remains one of the most inelastic goods. That is to say, a change in price one way or the other won’t result in a substantial adjustment in consumption. Basically, if you’re still driving to work, you’ll likely still need to commute in a recession.
However, the good news is that even absent an economic pullback, drivers can still expect gas prices to go down eventually. Gas has remained elevated since Russia invaded Ukraine. But the U.S. is rapidly working to increase its domestic supply of oil by expanding refinery capacity. It may take months to rebalance the supply shortage, but should the country manage to achieve pre-pandemic oil production numbers, it will likely result in price tensions easing at the pump.
Americans also tend to travel the most in the spring and summer. As such, gas prices may experience their typical seasonal decline come autumn, simply as a consequence of reduced travel.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
