Why Democrats fear high petrol prices

In theory, the Democrats shouldn’t be that worried about petrol prices on Tuesday. In practice, the Democrats are terrified about petrol prices.

“I’m going to have a little — as they say — ‘come to the Lord’ talk with ”the oil companies pretty soon. That was President Joe Biden speaking heading into the last weekend before Tuesday’s midterm elections.

Biden’s fear of a pump price backlash explains his zigzagging, cajoling oil companies to produce more and then threatening them with divine retribution. This is despite the fact that average petrol prices having fallen by almost a quarter from June’s $5 a gallon (R89 for 3.7l) peak.

In part, his fear stems from the fact that, at $3.80, pump prices are still relatively high compared with history; any price starting with a three is apt to rile up US drivers.

DIP AND SURGE

Yet, as with all prices, three isn’t what it used to be.

In September, when petrol averaged a shade lower at about $3.70 a gallon, it accounted for 2.3% of disposable personal income. At the $5 peak in June, it was 2.9%. These are far lower shares of income than during previous spikes.

Rather than absolute levels, however, what may be giving Biden and his party sleepless nights is that sudden dip and surge on the extreme right of the chart. Slow inflation, the defining US economic characteristic for much of the century so far, tends to pass unnoticed. Rapid increases fuel anxiety.

Redraw that same chart showing instead the rolling 12month change in petrol’s share of disposable income and a different picture emerges.

At its peak, the disruption unleashed by the Iranian revolution pushed fuel’s share of the US wallet to more than 4.5%, the highest on record. The most rapid 12-month increase then was in the period leading up to March 1980, following which voters turfed out then president Jimmy Carter.

Democrats can argue quite reasonably that $3-plus petrol today isn’t the burden it once was; the data supports this. But that will tend to be overshadowed by the fact that the 12-month increase recorded in March was actually a bit faster than that under Carter. It also doesn’t help that energy prices in general have risen sharply as a result of recovery from the pandemic and — in another echo of those turbulent 1970s — war.

Another aspect of this dichotomy between pump prices and the rate of change concerns conservation. The last time petrol ate up about 3% of income was in the period of 2011 to the middle of 2014, coinciding with the disruption of the Arab Spring. Back then, petrol averaged about $3.50 a gallon. This year, however, the US didn’t get to similar levels of income share until average pump prices hit $5. In other words, in terms of the effect on US wallets, $5 is the new $3.50.

This may explain why US petrol demand didn’t collapse outright this summer, as preliminary weekly data from the energy information administration had suggested. As it turns out, consumption in June to August fell by only 3% year on year, the same as in the summer of 2011, when prices jumped from less than $3 to almost $4.

High prices have had an effect, but nothing like what one might have predicted at $5. US drivers are more resilient than imagined. Given the whiplash they have experienced, though, they may well be just as unforgiving as expected.

SLOW INFLATION … TENDS TO PASS UNNOTICED. RAPID INFLATION INCREASES FUEL ANXIETY