Stock Market Insights: Gas prices squeeze consumers

DR. RICHARD BAKER, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management. https://www. facebook.com/Dr.RichardBaker

"What’s up with gas prices?” My 16-yearold son, who pays for his own gas, ran up the stairs very frustrated. He’d just spent $85 to fill his truck when he used to pay $65. Most Americans are feeling the same way as my son, that gas prices are too high.

Almost every talking head, whether on T.V., radio, or in articles, is telling me that inflation is getting a lot better, and I want to believe them, but then I buy fuel. Americans are beginning to struggle with gas prices.

Last Wednesday, the Labor Department released a report that showed inflation (Consumer Price Index (CPI) went up in August compared to last year. The many talking heads tried to explain it away by pointing out that if you take out food, energy and fuel, inflation is actually going down. But the problem is Americans can’t take food, energy and fuel out of their budgets because they need them to live.

It’s true that higher gas prices accounted for more than half of the increase in August’s inflation report.

The gasoline part of the CPI report went up over 10% from July to August alone, making it the third-largest monthly rise in gasoline inflation since the Global Financial Crisis. This is because crude oil has gone up over 28% in the last three months and might go higher.

Oil prices continue to climb because of low oil inventories and because OPEC (a cartel of oil-producing nations where Saudi Arabia is the largest producer) continues to cut production. OPEC is trying to squeeze the American consumer, and it’s beginning to work.

Here is what many politicians and talking heads don’t like to talk about. Even if inflation went to 0%, Americans would still be paying a lot more for things than they did three years ago. The pandemic created a financial crisis, and the world’s central banks tried to fix it by printing too much money, which caused inflation. Now, they are trying to fix the high inflation by raising interest rates, which makes loans more expensive for consumers. So basically, regular people are having to pay more on both ends.

The financial crisis problem hurt the middle class, and now the solution to the problem is hurting the middle class.

So, let me get off my soapbox and tell you how it will affect your investments.

The stock market reacted calmly to the latest inflation report because they think the Fed will probably pause existing interest rates in this month’s meeting.

Though most of the stock market might not be affected by rising oil and fuel costs, individual companies and consumers are. It affects many companies because oil is a major expense for several businesses. When oil prices increase, overall production costs increase, lowering profits, which could lower the company’s stock price. Airlines, refineries, trucking, paints and other companies are generally most affected by rising oil prices.

My biggest concern is how the higher fuel prices will affect the American consumer because the reality is that they have less extra cash, which will affect other companies’ sales. For example, the retail sales report that was just released showed that the amount of money spent in restaurants decreased for the third consecutive month. I believe this is because inflation, whether fuel or otherwise, affects consumer spending. For the next few weeks, I plan to keep an eye on stocks most affected by rising oil prices and companies that consumers give up on first when they are tight on cash.

My son is a server at a local Mexican restaurant. That extra $20 may not seem like a lot, but to him and many others with lower incomes, the higher gas prices are putting a squeeze on lifestyles.

Have a blessed week!

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