Panelists Dan Brouillette, Steve Moore and Art Laffer examine the economic impact of the Iran conflict on ‘Kudlow.’
High oil prices due to the Iran war are driving up gasoline prices and that can lead to higher grocery bills. American consumers.
Oil prices has surged in recent weeks after the outbreak of the Iran war, rising from the $60 to $70 barrel range for much of February to above $100 a barrel on Monday before easing back to $85 a barrel during Tuesday’s trading.
Higher oil prices in turn pushed up gasoline and diesel prices, with the average price of regular gasoline rising from $2.92 last month to $3.54 and diesel rising from $3.66 to $4.78 during that period, according to AAA data.
The increase in oil, gas and diesel increases the cost of transportation faced by businesses, including grocery stores that may face pressure to increase the price of food and other items to account for the increase in costs if the situation continues.
WILL BUYING OIL OVERCOME GAS PRICE INCREASE?
The war with Iran has affected the flow of oil through the Strait of Hormuz, which is a key choke point for the world energy market. (Giuseppe Cacace/AFP via Getty Images/Getty Images)
“Every time something goes up in the economy it’s going to cost more,” said Derek Reisfield, founder of MarketWatch and former McKinsey consultant. “Somebody, usually the end consumer, is going to have to pay for that.”
Gregory Daco, chief economist at EY-Parthenon, told FOX Business, “For American consumers, what this means is that while there is a price shock at the tap that is felt directly by consumers, there is still uncertainty as to how long this shock will last.”
“The impact of consumer spending is still a bit fluid because we don’t know the timing of the crude oil price shock and when electricity prices,” he added, noting that gas prices will rise if crude oil prices fall to pre-war levels.
FED OFFICIALS WATCH IRAN DEBATE FOR POTENTIAL EFFECT OF FINANCIAL AUTOMATION
Grocery prices can be affected by long-term energy price shocks because higher oil and gas prices increase transportation costs for businesses and can be passed on to consumers. (Justin Sullivan/Getty Images)
Daco noted that businesses find themselves in a “very fragile pricing position” because tariffs have increased input costs, which have been challenging to pass on. consumers are tired of inflation.
“Price sensitivity in the last few years has increased significantly, and consumers are increasingly pressured by affordability issues,” said Daco.
Talent costs are also being increased by rising wages, and now travel costs are increasing due to the oil and gas shock. And as consumers face their financial constraints, businesses are “struggling in terms of your ability to find a relief valve on the price side.”
Amid IRAN WAR, PRESIDENT TRUMP RAISES TEMPORARY OIL PRICES ‘MINIMUM PRICE TO PAY’ FOR PEACE.
Gas prices jumped after the outbreak of the Iran war. (Brandon Bell/Getty Images)
Daco said businesses can choose to weather those storms by using a combination of margin pressure and special pricing behavior to “avoid some of these shocks at least in the short term” as they try to protect market share while waiting to see if energy price shocks it will last a short time or it will last a long time.
Ben Fulton, CEO of WEBs Investments, said the oil shock “will have a butterfly effect if prices stay above $70 for a long time. Carrying costs, hedging costs production and a ban on manufacturers to protect against possible increases pending will be seen in stores.”
GET FOX BUSINESS ON THE GO BY CLICKING HERE
