Gas prices are one of those economic indicators that are always there and present in our lives, but we do not notice them as much until a large spike. As we have all seen, when they swing, it is often fast and dramatic. Two months ago, my family planned a road trip to Universal Studios Hollywood for my daughter’s spring break last week. At the time we planned this, we had no idea what gas prices would be.
With ongoing conflict in the Middle East, the Strait of Hormuz, the passage for 20% of the world’s oil output, has seen constrained traffic due to the conflict and attacks in the region on vessels[1]. This has caused oil prices to stay high with uncertainty on when they may return to what they were previously.
Gas prices are critical for several reasons. They hold first, second and third order effects that ripple across the economy. The first is simple and what my family experienced on the way to and from California—high gas prices make getting anywhere more expensive for individuals. Putting numbers to it, between the week of February 2nd, 2026, and March 9th, the average price for regular grade gasoline rose from $2.867 to $3.502[2] (as I write this, AAA shows the average at $3.72[3]). While a $6.35 increase in price per ten gallons (on average) may not be significant to some, it represents a reduction of disposable income for lower-income families and can lead to tough budgeting decisions. In California and many states, prices are even higher, jumping over $5 per gallon.
Gas, however, is not just a consumer cost, it can be a headwind on the supply chain. Higher gas prices can increase costs for suppliers, cutting into their bottom line, with the third order effect being higher prices rippling through the economy for all consumers[4]. Again, this is a bit of a regressive tax that hurts lower-income Americans disproportionately as they have a higher percentage of income in non-discretionary parts of the economy.
This inflationary pressure brought on by fuel costs is again something the Federal Reserve will have to keep in mind with any future interest rate decisions as well as how there could be a bit of a drag on the economy. I believe the era where the Federal Reserve is in focus with every decision and interview being closely monitored should extend throughout the year. That said, this is a supply-side shock and the Fed’s toolbox primarily targets demand. A status quo, higher for longer (rate policy) may be more likely as we move deeper into 2026.
I hope everyone has a great spring and enjoys the warmer, longer days.
Key Takeaway: The recent surge in national gas prices driven by geopolitical constraints in the Strait of Hormuz is more than a consumer inconvenience. It represents a supply-side shock that threatens to keep inflation sticky, potentially forcing the Federal Reserve to keep a “higher for longer” interest rate stance through the rest of 2026.
[1] https://www.cnn.com/2026/03/16/business/iranian-oil-exports-hormuz-strait-intl-cmd
[2] https://www.eia.gov/dnav/pet/PET_PRI_GND_DCUS_NUS_W.htm
[3] https://gasprices.aaa.com/
[4] https://www.deloitte.com/cz-sk/en/mnaport/articles/clanky-tydne/2026/ropny-sok-neni-jen-o-cennach-pohonnych-hmot.html
