Higher Gas Prices May Leave You Less Money to Spend on Memorial Day Sales

Sat May 26 2018
Rajesh Sharma (2046 articles)
Higher Gas Prices May Leave You Less Money to Spend on Memorial Day Sales

More Americans are expected to travel this Memorial Day weekend than any other in the past 12 years. But heavier traffic won’t be the only thing that dampens moods.

Rising oil prices in recent months could cut into travel budgets, potentially leaving consumers with less money that would otherwise go to holiday shopping discounts. And if prices continue to rise, more expensive gasoline could offset some of the tax cut benefits President Donald Trump signed into law in December.

Oil prices recently surged above $ 70 a barrel, the highest level since November 2014, in reaction to declining supplies and President Trump re-starting sanctions against Iran, a major oil producer. That translates into gasoline costing about $ 3 a gallon on average in the U.S. as of Friday, compared to $ 2.30 a year earlier.

The rising prices could limit tighten consumers’ wallets, at a time when big-ticket items, including cars and home appliances, traditionally go on sale.

And the rise in oil and gasoline prices could continue into the summer.

“Americans haven’t experienced prices like these in nearly three years, and it is possible that these prices could hold steady or continue to rise throughout the whole summer,” said Andrew Challenger, vice president of executive coaching firm Challenger, Gray & Christmas. “It is likely that Americans will have less discretionary spending on travel-related purchases [this summer], which means that companies and cities that rely on tourism may still be hurt by the price increase.”

If so, much of the financial benefit to consumers of Trump’s recent tax cuts could go to paying for higher gas prices.

“While the tax cuts have lifted take-home pay for the vast majority of workers, rising gasoline prices are eating into that benefit,” Morgan Stanley’s chief U.S. economist Ellen Zenter wrote in a note earlier this month.

Trump’s tax cuts are expected to result in $ 1,610 in tax savings for the average American, according to the Tax Policy Center.

Still, for Memorial Day at least, travelers — 41.5 million are expected to drive, fly, bus or take a train — may find some relief in other ways. Airfares have fallen 7% compared to the same period a year earlier, according to the AAA, with an average domestic roundtrip ticket clocking in at about $ 168.

The average nightly price of a hotel has also dropped, with the cost of mid-level locations falling 14% from a year earlier, to an average of $ 186.

In another positive sign for consumers, oil prices slipped slightly Friday, amid news that OPEC is likely to boost oil production starting later this year in a move that could lower gas prices.

Rajesh Sharma

Rajesh Sharma

Rajesh Sharma is Correspondent for Stock Market of South East Asia based in Mumbai. He has been covering Asian markets for more than 5 years.