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Contrary to Late 2022, KC Fed Expects Gas Prices Won’t Lower Inflation in 2023 | Colorado

(The Center Square) — Gasoline prices contributed to the highest annual inflation rate in decades in 2022, but likely won’t reduce inflation in 2023, according to Kansas City Federal Reserve research.

“…gasoline prices are unlikely to provide further relief from inflationary pressures in the future,” wrote Fed economists Nida Çakır Melek, Francis M. Dillon and A. Lee Smith. “…gasoline prices will remain relatively stable through the end of 2023. Although the January 2022 projection underscores unexpected turns energy markets can take, if the January 2023 projection were to materialize, eventually gasoline prices would be around $3.40 a gallon of the 2023, not far from their December 2022 level. This relative stability in gasoline prices would also lead to stability in one-year inflation expectations in 2023.

The price for a gallon of regular unleaded gasoline hit an all-time high of $5.01 on June 14, 2022, according to AAA. It helped the consumer price index rise to 9.1 percent during the month, the highest inflation rate in 40 years, according to the US Bureau of Labor Statistics.

Economists have written that gasoline prices can influence inflation directly, through higher prices at the pump, and indirectly, by shaping consumers’ inflation expectations. Researchers reported that the number of Google searches for “inflation” in August 2022 was the highest since tracking began 18 years ago.

“Consumers’ inflation expectations are a major determinant of actual inflation,” the report said. “For example, higher inflation expectations may cause workers and firms to demand higher wages and prices in anticipation of higher costs. Furthermore, if households expect higher inflation in the future, they may choose to make large purchases such as appliances today, thus driving up future demand and driving up actual inflation.

Economists have said that changes in the price of goods bought most often are a major factor in shaping consumer expectations. Gasoline falls into this category.

“The effect gasoline price changes have on inflation expectations, and therefore inflation, can be magnified when inflation is already high and consumers are scrutinizing the prices they pay for everyday essentials ”, states the report.

The national average for a gallon of unleaded Wednesday was $3.41, according to AAA.

Here are the average prices for a gallon of unleaded according to AAA in the states served by the Kansas City Federal Reserve:

Colorado: $4.06 with the low in Durango at $3.40;

Kansas: $3.14 with the lowest in Wichita at $3.02;

Missouri: $3.07 with lows in St. Joseph and Columbia at $3;

Nebraska: $3.30 with the Omaha low at $3.18;

New Mexico: $3.30 with the lowest in Santa Fe at $3.15;

Oklahoma: $3.12 with the lowest in Lawton at $2.92;

Wyoming: $3.42 with the Casper low at $3.20.

In addition to Colorado, six other western states — Washington, Oregon, California, Idaho, Nevada and Utah — had retail prices averaging $3.67 to $4.88 a gallon.

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