Inflation is raising prices for food, fuel, energy, and more.
Even with gas prices falling from their summer high, gasoline is still more expensive than it was a year ago.
Trimming the cost of your commute can give you more spending money for other necessities.
Inflation has hit everything from prices for electricity1 to Cheetos2 to gasoline, with the national average gas price hitting an all-time high of $5.01 per gallon in June 2022, according to AAA.3 Though prices have fallen, they’re still far above what they were a year ago. Higher prices at the pump have made it more expensive to drive, which is changing how some people commute.
Here’s a look at what’s influencing gas prices, what forecasters predict for the months ahead, and how drivers are coping.
How did gas prices get so high?
The price you pay at gas stations reflects not just oil prices but also costs of refining, distributing, and marketing the fuel, as well as taxes, according to the U.S. Energy Information Administration (EIA). Federal taxes amounted to about 18 cents per gallon as of August, according to the EIA.4 State taxes and fees vary but are around 32 cents on average. That number is even higher in some states, including California, Pennsylvania, and Washington.
Several international and domestic factors are influencing gas prices as well.
Russia’s invasion of Ukraine
Crude oil prices jumped after President Joe Biden announced a ban on imports of Russian oil. With Russian oil representing about 8% of U.S. oil imports, the ban was a significant move.5
The Biden administration has proposed a global price cap on Russian oil to keep prices in check, but detractors say it may not have the intended effect.6
Lingering effects of the COVID-19 pandemic
The oil industry slowed down production at the height of the pandemic when people stayed home and bought much less gasoline. As stay-at-home rules fell away and people returned to the roads, demand for gasoline rose faster than companies could ramp up oil-producing activities.
Energy companies under pressure
Even before the pandemic, energy companies faced pressure from investors to prioritize returns for shareholders over spending to develop oil fields. Production has also been affected by inflation, labor shortages, and bad weather this year, companies have said.7
However, the number of active oil and gas rigs in the U.S. is up, according to Baker Hughes,8 which releases data on drilling activity. As of mid-August, there were 763 active rigs, up by 262 from the same time a year earlier, which could mean relief is on the way.
What gas prices can we expect in the future?
In August, the EIA forecast average gasoline prices would fall to $3.78 per gallonin the fourth quarter of 2022.1
Nevertheless, prices for electricity, natural gas, and heating oil are projected to climb into next year,1 so you may want to try to save money on other expenses, like the cost of commuting to work.
For many, the commute to work is more expensive
Some workers are switching jobs or considering a change in jobs to avoid an expensive commute, according to bosses.9
FinanceBuzz estimates drivers are spending roughly 1 to 6 percent of their monthly incomes on gas.10 Its study was based on gas prices in May, when the national average price was $4.48 per gallon.11
But it’s not just money that workers spend on commutes. They’re spending time too. Before the pandemic, the average one-way commute in the U.S. hit a record-high of 27.6 minutes, the U.S. Census Bureau said in a 2021 report.12
That’s changing how Americans make their way to work:
The shift to working from home
Almost 60% of us who can do our jobs from home say we’re working from home these days, up from 23% who say they teleworked frequently before the COVID-19 outbreak, according to the Pew Research Center.13 The commute from bed to a home office is saving workers nearly an hour each day on the average round trip to work.
Commuter benefits, transit, and alternatives to driving
If driving is part of your job duties, remember that effective July 1, 2022, the IRS increased the standard mileage rate to 62.5 cents per mile, up from 58.5 cents per mile, for the rest of 2022. Taxpayers can use that rate to calculate deductible business costs, if an employer doesn’t reimburse mileage expenses.14
Other workers are walking or bicycling to save some money.
Just as some employers offer flexible spending accounts, or FSAs, for you to stash pre-tax dollars from your paycheck to go toward medical expenses during the year, some offer commuter benefits accounts. You can set aside $280 in pre-tax money per month for transit expenses and $280 for parking if your employer offers this benefit.16
Things to consider
Commuter benefits offered by your employer can help you save money.
Forecasts call for lower gas prices in 2023, but you may still want to save on commuting amid higher inflation.
If it’s possible with your job, work from home for the shortest commute of all.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.
