American middle-class consumers are enjoying the most robust wage growth in a decade, but higher gasoline prices are eating a good chunk of that increase for many, and it looks like pump prices are headed higher.
Gasoline pump prices have already jumped about 25% this year, the fastest rate in three years. Trump administration sanctions against Iranian crude oil exports had something to do with that, and this week's move to tighten sanctions could soon send prices even higher.
Crude oil prices hit their highest in about six months on Tuesday. Some analysts expect the national average pump price, currently near $2.85 a gallon, will climb above $3 a gallon for the first time since 2014. Few goods prices aggravate US consumers as much as high gasoline prices.
"It's an important part of consumers' psyche," Mark Zandi, chief economist at Moody's Analytics, said of a further rise in energy prices. "They live with it everyday."
Zandi and other analysts said higher gasoline prices would irritate US motorists heading into the summer driving season, but they do not think a moderate fuel price hike would force people to cut spending in other areas.
For now, consumer spending has remained resilient, with wages growing in a tight job market. Average hourly earnings in the private sector are rising at roughly 3.2% year over year, the strongest in a decade.
Those bigger paychecks helped pay for costlier gasoline after the Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia reduced output to prop up prices. Retail prices for regular gasoline have risen around 55 cents a gallon so far this year from $2.30 at the end of 2018, according to AAA, an automotive advocacy group.
"So far it hasn't been a particularly large headwind for US consumers," said Matt Luzzetti, Deutsche Bank AG's Chief US Economist.
The Trump administration called for buyers of Iranian oil to stop purchases by May 1 or face sanctions, ending six months of waivers that allowed Iran's eight biggest buyers to keep importing limited volumes.
Analysts noted that US domestic crude production was surging and said higher output from OPEC and Russia could help offset losing about 1 million barrels per day of Iranian oil from world markets. But sources on Tuesday said Gulf OPEC members were ready to raise output only if they saw sufficient demand.
Some US consumers are already paying $3 a gallon at the pump and will feel the squeeze if prices rise further.
In February, filling a 25.5-gallon tank of a sports utility vehicle with regular gasoline would have cost around $57 on average. That has risen to nearly $73, based on government data.
For a $15-an-hour employee working 35 hours a week, filling up once a week now costs 14% of gross pay, up from less than 11% just ten weeks ago.
"I'm hyper-aware of the gas pricing," said Brittany Trotter, a part-time driver for Lyft Inc based in Washington, D.C. She said rising fuel costs have cut her profits and stretched her budget.
Even before the latest Iran news, drivers expected rising prices at the pump to cut their income. A survey in March showed consumers expected prices to rise 4.7% over the next year, the largest figure in nine months, according to the Federal Reserve Bank of New York.
The consumers surveyed expected their wages to rise 2.6% over the year, though earnings growth expectations slipped for people with a high school diploma or less education.