Energy prices have been steadily rising for some time, even before the war overseas, and banning Russian oil has increased costs. Daily news headlines revolve around gas prices at the pump topping $5 a gallon in most states and over $6 in larger metro cities. When is this going to end and reverse? This Russian oil ban is sending crude skyrocketing prices for everything from rideshares to bottled water.
The significance to you is that it costs more to heat your home and fill up your car. But even beyond those obvious pain points, the spike in crude prices is likely to make other aspects of everyday life more expensive for average consumers. Because oil underpins crucial elements of the economy like shipping and manufacturing plastics, almost no industry is immune, which will hurt you in the pocketbook in the future. Moreover, with no end to the war and post lockdown resurgence in demand for fuel, experts are predicting higher gas prices and, in some states topping $9 a gallon by fall.
Okay, let’s say you do not own a car, so technically, rising gas prices will not affect you directly, but you will probably use rideshare like Uber or Lyft to get around. These companies will most likely pass along any increase in a surcharge which will be felt during the summer as consumers leave their homes, meet friends at restaurants, see concerts and attend sporting events. Of course, many will opt for lower-cost modes of transport like public transit, but even buses and trains might not be immune to fare increases, especially since many of these vehicles run on diesel fuel.
Food prices are getting hit from multiple fronts. Labor shortages and supply-chain snarls had already pushed food costs before the war, with one United Nations index near 2011’s all-time high. Average prices rose about 28% in 2021, the most in over a decade. Higher oil prices mean it will cost farmers more to operate their equipment as diesel prices are at an all-time high and to ship food worldwide.
With Covid cases decreasing and many already getting their booster, Americans are eager to take the trips they’d put off during the pandemic. So higher price tags might be an unwelcome companion. Higher fuel prices will only make that worse for vacationers traveling by air and those going on cruises and train journeys. Airlines are a large consumer of oil. Price increases for customers will depend on how companies hedge against risk.
Fuel prices make it more expensive for ordinary people to heat their homes, with electric bills doubling for U.S. families. The increase in oil prices is already being felt in the housing market. In addition, the Federal Reserve is taking drastic measures not seen in 30 years to curb inflation by raising interest rates. As a result, it will cost the average consumer more to purchase the same home or reduce their buying power as rates increase. Last year the typical home price rose almost 19% in value thanks to high demand and a supply shortage. Building new homes is also becoming more expensive because of labor costs and higher prices for raw materials like lumber; increased shipping costs will likely worsen the problem.
The fact of the matter is that surging oil and gas prices are making everything more expensive which impacts both consumers and business owners. It is more important than ever to talk with financial experts to identify strategies right for your business.
Article by: Rakesh Parikh
Rakesh is a Managing Director and founding member of Pivot Capital LLC. As a registered certified public accountant, he’s spent the past 20 years in private practice as the founder of One Capital Financial Advisors, Inc. advising clients in accounting and financial services including audits, reviews, compilations, valuations, tax advice and LLCS corporate preparation. His work also includes mergers and acquisition advisor, certified exit planning advisor to small business and family partnerships as well as due diligence in buyer-side target acquisitions.