We just broke an all-time USA record! Unfortunately, it was a record for the national average for a gallon of gas breaking $5 for the first time ever last Saturday. The price at the pump was up 30 cents over the last 3 days and increased $2.04/gal from 12 months ago. According to Opis, a company that tracks gas prices for AAA (the American Association of Automobiles), Monday was the 16th straight day gas prices have increased. Distillate fuel inventories, which include diesel, are a whopping 24% below our five-year average.
The Google definition of inflation is: “A general increase in prices and fall in the purchasing value of money over time.” Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can also cause inflation as consumers are willing to pay more for the same product. In other words, a sudden imbalance in supply and demand can cause inflation to rise rapidly!
As you have probably noticed, it is NOT just gas prices, as the prices of many other goods and services are on the rise. The May 2022 CPI (Consumer Price Index) reports were just released, and it rose 8.6% over May of 2021, a 40-year high. The CPI measures the cost of goods and services over time.
You might be asking yourself, “how did this happen” and “what does this all mean for me?” Good questions! This means if you are on a fixed income or salary, your money will not go nearly as far during these times of rampant inflation.
How did this happen? I will give six reasons for the current gas quandary we are in, which I predict will go up another $1 per gallon over the next 30-90 days.
The following are 6 reasons for our current gas predicament:
- The Russian Invasion of Ukraine: This sudden invasion with no warning dramatically decreased the amount of oil and gas available due to the NATO’s (North Atlantic Treaty Organization) immediate sanctions on Russian energy exports.
- A Shortage of Refineries to Convert Light Crude Oil to Gas, Diesel Fuel and Jet Fuel: Nobody is talking about the high number of refineries that shut down during Covid-19 in 2020 and 2021. If you remember, in the beginning of this pandemic, few people were driving; hence, demand shrunk almost overnight, causing many refineries to shut down.
- The Shutdown of the Keystone Pipeline: This was the first major move of the Biden Administration as the Keystone Pipeline was 1-2 years away from completion. This would have given us more control and significantly more reserves to stockpile for the exact situation we now find ourselves in.
- Releasing Reserves Was a Band-Aid: In an effort to reduce prices, we released significant reserves, which did not resolve the situation.
- Shipping Conglomerates Raised Prices: When gas and oil demand goes up, so do the prices, and shippers have taken full advantage of the current situation.
- Summer Vacation Time: Many Americans have been couped up for over 2 years and are taking that much-needed vacation or two this summer, despite the high gas prices. This higher summer demand will push up gas and oil prices (Crude Oil Barrel is now over $120 from $100 a month ago) even further. This is why I am predicting another $1 increase over the summer. I hope I am wrong!
The combination of less refining capabilities and increased summer travel have exacerbated this imbalance between oil and gas supply and demand. This causes major ripple effects. Consider that as of 2019, the United States trucking industry has been responsible for transporting 70% of ALL goods in the USA. Higher diesel gas and oil prices mean higher trucking costs, which lead to higher supermarket prices and airfares!
Companies know that Americans are watching prices closely and have resorted to “sneaky measures” in my opinion, called “Shrinkflation!” In economics, Shrinkflation is known as the process of items shrinking in size or quality, while their prices remain the same. It is important to me that my “Financial Wave” column readers stay educated and ahead of the curve reducing your expenses by being smarter than non-readers!
As per the NY Post, 5 Current Examples of Shrinkflation Include, but are Not Limited to:
- Gatorade is phasing out 32-ounce bottles in favor of taller and thinner 28-ounce bottles sold for the same price.
- Small Kleenex Boxes now have 60 tissues instead of 65.
- Chobani Flips Yogurts have shrunk to 4.5 ounces from 5.3 ounces.
- Cottonelle Ultra Clean Care toilet paper is down from 340 sheets to 312 sheets.
- Folgers coffee downsized its 51-ounce container to 43.5 ounces but, still states it makes up to 400 cups.
My takeaway is that it is important to keep track of trends and try to build a habit of reading and comparing labels and prices both for value and health purposes. With all smartphones having a calculator, it doesn’t take long to calculate a cost per ounce even while at the supermarket or at home comparing prices to save big $$$.
Do you have any additional examples of shrinkflation? Feel free to email me at Rob@InsuranceDoctor.us.