As the Federal Reserve toils with the broad topic of how inflation will impact the economy, consumers have to look no further than their local gas station to see growing gasoline prices. Gasoline prices in the United States, for regular gasoline, increased from an average of $2.015 per gallon in November 2020, to the current level of $2.771, according to the US Energy Information Administration.
Now, with the Colonial Pipeline cyberattack, the average cost of gas is expected to push past $3.00 per gallon, the highest rate since 2014. Shortages are expected in the Southeast, from Virginia to Florida and Tennessee to South Carolina.
While the Bureau of Transportation shows that Passenger Vehicle Miles Traveled (VMT) rebounded after the historic low experienced in April 2020, consumers back driving to work may soon need to manage their budgets a little bit more.
Specific credit cards aligned with financial institutions and gasoline providers, such as ExxonMobil, the Shell Drive-for-Five, and Sunoco rewards card, all issued by Citi, offer per-gallon discounts 5 cents per gallon to 10 cents per gallon. In a shifting market, one might find a reward program linked to the traditional point-per-spend model, such as TD Bank’s Easy Rewards credit card, which has a 5x multiplier during the first six months and then downgrades to 2%. If you are counting points, 2% cashback returns $0.06 at $3.00 per gallon.
CNBC calls this issue out and references an estimate that consumers spend an average of $2,218 per year, $185 per month, on gasoline.
With increasing prices and looming inflation, credit card issuers will see increased card spend, 40-or-so percent, which will bleed over into revolving debt. Consumers who reduced their commutation expense as they shuttered at home now face price increases as they return.
At least credit cardholders will find solace in their reward programs. Coincidently, Discover It and Chase Freedom, who both have rotating reward categories that offer 5x multipliers in rotating categories, both have the same benefit for the current quarter. Between 4/1/2021 and 6/30/21, both firms offer 5% back at gasoline stations.
While the industry awaited a return to consumer spending, we hoped we would be dining out more and buying discretionary items, not simply paying more for gasoline.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group