Will gas prices stay high?: Duke economists predict future trends on inflation

Posted June 22, 2022 12:34 p.m. EDT
Updated June 22, 2022 4:04 p.m. EDT

— The headlines around inflation and its economic impact are getting overwhelming for American consumers as summer begins. Having children home from school adds expenses to the daily budget for food and fun.

Last week, the U.S. Federal Reserve increased interest rates by 0.75 percent, the largest single increase since 1994. The raise is a move made in hopes of slowing surging prices for food, fuel and other staples at the midway point of 2022.

Economists and economic professors at Duke University shared their perspectives on the economy's developments in the last year and where it's headed in a virtual question-and-answer session on Wednesday. Gas prices, the rising costs of consumer goods and the housing market are three hot topics on shoppers' minds.

Professor Connel Fullenkamp said there's still money to be spent from the pandemic stimulus packages that were distributed over the course of 2020 and 2021. He expects more of that money to be spent by consumers in the months to come, but hints at a possible downturn in spending after that.

More interest rate increases are likely, according to Fullenkamp. U.S. consumer confidence edged lower in May, according to an Associated Press report.

Fullenkamp feels the economy could enter a recession in 2023, but thinks it will be mild due to consumption strength and households generally haven't over borrowed money. Unemployment rates are still low, hovering at around three percent in North Carolina.

"I really see this as the summer of the last hurrah as far as consumption," said Fullenkamp. "We still have a lot of money from the pandemic fiscal stimulus packages and a lot of people have pent-up consumption demand. They want to go out and take that summer vacation, they know the prices are increasing. You put all these things together and a lot of people are going to say 'let me go out and spend this extra money that I have before prices go up too much.' I think the fed is going to have wait a little bit longer to see significant evidence of the economy cooling off from its actions."

Emma Rasiel agreed and added unemployment shouldn't raise to the level of 2008, when it tipped into double digits. A NC State University professor believes a recession could hit in late 2022, despite the state's strong recovery from the onset of the COVID-19 pandemic.

A recent look at the Consumer Price Index showed that Americans are spending, on average, 10.1% more on food, 34.6% more on energy, including fuel and utilities and 16.1% more on used vehicles.

"I don't have a sense of when that will be, but I do agree that it won't be too bad of a recession," Raisel said.

What's behind higher gas prices?

The economists said that gas prices will likely remain high, a point of contention for drivers who have paid upwards of $5 a gallon on average in the U.S. in recent weeks.

Fullenkamp said gas prices are due in part to a lack of refining capacity available in the U.S. Even with the proposed gas tax holiday, it's up to the gas suppliers to determine how much of those savings they will pass along to drivers. On Wednesday, President Joe Biden is expected to call on Congress to suspend federal taxes on gas and diesel fuel for three months.

Emma Rasiel says such a move might save most drivers only a dollar or so per fill-up. She also said food prices likely will remain high. So far, fruits and vegetables have not risen as much as meat, but that could change.

"I think over the course of this year, we may see those fruit and vegetables going up in price as well, because there are constraints to access of fertilizers, which is affecting the production cycle," Rasiel said.

Will the Triangle housing market ever cool off?

In Wake, Durham and Orange counties, the housing market has exploded in the last two years. Berger feels it will cool off somewhat, but not tremendously as the Triangle continues to attract recent college graduates and families.

"I suspect the housing market will cool, somewhat, relative to what it's been like in the last two, three years for sure," Berger said. "In the Triangle, specifically, it's going to be more of a modest cooling. It's important to remember we have record-low housing inventories."

In the Triangle, it's a matter of low supply and overwhelming demand, said associate professor David Berger, who doesn't expect to see housing costs come down significantly given the volume of people moving to North Carolina. Rent prices are likely continue to go up, as Berger pointed to record-low vacancy rates in multi-family housing.

"At the new market rate level, which is expensive, there's going to be some moderation, because throughout the Triangle, there's just a ton of new supply coming on in the next few years," Berger said.

In North Carolina, this week's decline in gas prices was small, but welcome. The average gas price in North Carolina of $4.59 is still hitting people’s wallets hard. Meanwhile, consumer prices have surged 8.6% in May from a year ago, faster than April’s year-over-year increase of 8.3%, the Labor Department.

"We have to get through this kind of overhang, if you will, of extra money laying around from the pandemic fiscal stimulus package and that has largely worked its way through in the lower end of the income distribution and the middle is going to pretty much spend it up, I think, by the end of the summer," Fullenkamp said.

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