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Discussing the Rise in Gas Prices and Inflation

Discussing the Rise in Gas Prices and Inflation

Renee Shaw and her guests discuss the rise in gas prices and inflation during 2021-22. Guests include: Michael W. Clark, director of the Center for Business and Economic Research at the University of Kentucky's Gatton College of Business and Economics; Kenya Stump, executive director, Kentucky Office of Energy Policy; and Jason Bailey, executive director, Kentucky Center for Economic Policy.
Season 28 Episode 81 Length 56:34 Premiere: 5/23/22

Economists Examine the Causes Behind Price Increases That Are Burdening Kentuckians

With inflation hitting record highs, it’s hard to find good news when it comes to the cost of consumer goods these days.

Economists blame a perfect storm of factors that have led to higher costs for nearly everything from cars to food to gasoline. They point to COVID closures, global supply chain disruptions, federal pandemic relief, international trade policies, and the war in Ukraine.

“We just have an economy that has become increasingly monopolized, increasingly globalized and it puts us in a difficult situation when a crisis reshuffles demand, reshuffles supply,” says Jason Bailey, executive director, Kentucky Center for Economic Policy.

Because the causes are multifaceted and interconnected, experts say it’s hard to find a solution that can provide real relief for consumers in the short term. Even something as mundane as gas prices are beyond the reach of policymakers, according to Somerset Community College economics professor Chris Phillips.

“The president doesn’t have a button that says ‘lower gas,’” he says. “It’s very difficult if not impossible for any politician of any stripe to make an immediate change.”

Lower Gas Prices Likely Months Away

AAA puts the current average gas price nationwide at about $4.60 a gallon. A year ago, it was $3.03.

Kenya Stump, executive director, Kentucky Office of Energy Policy, says low prices in 2020 and 2021 were a function of unusually low demand during the early months of the COVID-19 pandemic. She says when businesses reopened and the economy surged, production did not keep up. Then Russia invaded Ukraine, throwing another monkey wrench into fuel markets. That caused gas prices to jump by $1 a gallon.

The good news for Kentuckians, according to Stump, is that gas prices in the state are lower than the national average at about $4.20 a gallon. She says prices will come down eventually. Next year, she says they should be back under $4 a gallon, assuming no additional shocks to global markets. Until then, she expects gas to remain expensive during the important summer travel season, even with more output from oil producers.

“It takes a while for production increases to make their way through the system,” says Stump. “It’s not an instantaneous switch that we turn on.”

Price is only part of the cost equation, though. Stump says people can reduce consumption as a way to save money, either by driving less or by boosting fuel efficiency.

What likely won’t have any substantial, long-term impact on prices is suspending gasoline taxes.

“It’s kind of a gimmick, a lot of states have done it, but it’s not necessarily the best way to deal with the problem,” says Bailey.

The state gas tax is 26 cents a gallon, which goes to road construction and maintenance in the commonwealth. University of Kentucky economist Kenneth Troske says suspending the tax could help consumers some, but it could also be easily offset by another jump in overall gas prices.

“The solution for the long run is trying to get more supply and trying not to have disruptions in the market like we’ve seen,” says Troske. “You’d also like not to have an OPEC cartel controlling the supply of oil.”

Other Factors Driving Inflation

Gas and diesel prices play into the costs of other consumer goods. Economists say inflation is also being driven by production and supply chain disruptions accompanied by a surge in demand as Americans spent their federal COVID relief checks and as wages have increased for many. During the pandemic, consumers also shifted from spending on services to buying more goods. While people dislike higher prices, UK Economist Michael Clark they aren’t all bad.

“Higher prices are the solution to a lot of these supply chain issues,” says Clark. “That higher price provides that incentive for businesses to produce more, which helps… to get these products out there.”

Federal policies also play into price increases. For example, Troske says tariffs implemented by former President Donald Trump are impacting imports of baby formula and contributing to a shortage of that product. Clark says President Joe Biden’s emphasis on renewable energy, while a good strategy for the planet in the long term, could exacerbate current short-term petroleum shortages. Bailey says deregulation of the trucking industry has pushed drivers’ wages lower, which has created a shortage of drivers, further delaying the delivery of goods to retailers.

Then there’s the COVID relief checks sent to Americans by the Trump and Biden Administrations. Spending that money helped keep families and businesses afloat during very challenging times, but also contributed to inflation because demand for goods outpaced available supplies.

“We did not have a depression, and that’s a great thing,” says Troske, “but, boy, we’re paying the price for that now.”

Another question mark has been the response from the Federal Reserve. The central bank has faced a barrage of criticism by not reacting swiftly enough to stem the inflationary tide. The Fed can raise interest rates to cool the economy and encourage people to save more money, which can lead to lower prices.

“Based on the behavior of the Fed in the past, we should have interest rates at 11 percent right now,” says Troske.

But finding the exact right amount of increase is tricky. Raise interest rates too little or too slowly, and inflation could spiral out of control. Raise rates too aggressively, and the economy could grind to a halt. Central bank officials have argued that inflation would go down on its own as supplies of goods rebound. Yet they have also signaled they could raise the interest rate in the months ahead by an average of 2 percent or more.

“The Fed is bringing a sledgehammer to the situation and it’s kind of easy to break things when you do that,” says Bailey.

“The concern is can they make those adjustments just right, or do they dampen demand too much so that we actually see both high prices and… employment start to decline,” says Clark.

Phillips says overall economic growth and job creation is fastest that it’s been in 40 years. Gov. Andy Beshear recently announced the unemployment rate in Kentucky is at its lowest point ever at 3.9 percent. At the same time, employers around the state and nation are struggling to fill open jobs.

“With about 6 million unemployed and with the all opportunities out there, I keep wondering what are people waiting for?” says Phillips. “You can find a job, it’s just maybe not the job.”

To fill all those open jobs, Phillips says lawmakers should make legal immigration to the U.S easier.

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Season 28 Episodes

Discussing New Developments in the COVID-19 Pandemic

S28 E84 Length 56:33 Premiere Date 6/20/22

Reducing Opioid Addiction Rates in Kentucky

S28 E83 Length 56:36 Premiere Date 6/13/22

Mass Shootings and Gun Laws

S28 E82 Length 56:33 Premiere Date 6/6/22

Discussing the Rise in Gas Prices and Inflation

S28 E81 Length 56:34 Premiere Date 5/23/22

Previewing Kentucky's 2022 Primary Election

S28 E80 Length 56:33 Premiere Date 5/16/22

Third Congressional District Democratic Primary

S28 E79 Length 56:33 Premiere Date 5/9/22

Candidates in the 2022 Primary Election: Part Two

S28 E78 Length 58:33 Premiere Date 5/2/22

Candidates in the 2022 Primary Election: Part One

S28 E77 Length 58:40 Premiere Date 4/25/22

Lawmakers Review the 2022 General Assembly

S28 E76 Length 56:33 Premiere Date 4/18/22

Recap of the 2022 Legislative Session

S28 E75 Length 56:35 Premiere Date 4/11/22

Public Assistance and Jobless Benefits

S28 E50 Length 56:33 Premiere Date 3/28/22

Abortion Legislation in the 2022 General Assembly

S28 E49 Length 56:34 Premiere Date 3/21/22

State Budget, Taxes, and Other 2022 General Assembly Topics

S28 E48 Length 57:42 Premiere Date 3/14/22

Critical Race Theory and Approaches to Teaching History

S28 E47 Length 56:33 Premiere Date 2/28/22

2022 Legislative Session at the Midpoint

S28 E46 Length 56:33 Premiere Date 2/21/22

Name, Image and Likeness Compensation

S28 E45 Length 56:33 Premiere Date 2/14/22

Child Abuse and Neglect

S28 E43 Length 56:33 Premiere Date 2/7/22

Debating School Choice in Kentucky

S28 E42 Length 56:35 Premiere Date 2/1/22

Debating Provisions in the Proposed State Budget

S28 E41 Length 56:34 Premiere Date 1/24/22

Redistricting, State Budget, and Other Legislative Issues

S28 E40 Length 56:33 Premiere Date 1/10/22

Discussing Legislative Goals for the 2022 General Assembly

S28 E39 Length 56:33 Premiere Date 1/3/22

City and County Issues

S28 E38 Length 56:34 Premiere Date 12/13/21

Previewing the 2022 Kentucky General Assembly

S28 E37 Length 56:35 Premiere Date 12/6/21

Compensating College Athletes: Name, Image and Likeness

S28 E36 Length 56:33 Premiere Date 11/22/21

Trends in State and National Politics

S28 E35 Length 56:34 Premiere Date 11/15/21

Abortion Rights and Restrictions

S28 E34 Length 56:33 Premiere Date 11/8/21

Kentucky's Social Services System

S28 E33 Length 56:33 Premiere Date 11/1/21

School Choice in the Commonwealth

S28 E32 Length 56:33 Premiere Date 10/25/21

Historical Horse Racing: A Growing Pastime in Kentucky

S28 E31 Length 56:33 Premiere Date 10/11/21

New Developments and the Unknowns of COVID-19

S28 E30 Length 56:33 Premiere Date 10/4/21

COVID and the Classroom

S28 E29 Length 56:33 Premiere Date 9/27/21

Remembering 9/11, 20 Years Later

S28 E28 Length 56:33 Premiere Date 9/13/21

Kentucky's Response to COVID-19

S28 E27 Length 56:35 Premiere Date 8/30/21

Discussing the Surge of COVID-19 Cases in Kentucky

S28 E26 Length 56:34 Premiere Date 8/23/21

Fancy Farm Preview and State Politics

S28 E25 Length 56:33 Premiere Date 8/2/21

Back-To-School Issues in Kentucky

S28 E24 Length 56:33 Premiere Date 7/26/21

Childcare Challenges

S28 E23 Length 56:33 Premiere Date 7/19/21

The Urban-Rural Divide in Kentucky

S28 E22 Length 56:34 Premiere Date 7/12/21

Work Shifts: Kentucky's Labor Shortage and Hiring Challenges

S28 E21 Length 56:33 Premiere Date 6/28/21

Public Infrastructure: What Kentucky Needs

S28 E19 Length 56:34 Premiere Date 6/21/21

Debating Critical Race Theory

S28 E18 Length 56:34 Premiere Date 6/14/21

Kentucky's Rebound From COVID-19

S28 E17 Length 56:33 Premiere Date 6/7/21

Jobs and the Economy

S28 E16 Length 56:33 Premiere Date 5/17/21

The Future of Policing in America

S28 E15 Length 56:34 Premiere Date 5/10/21

President Biden's First 100 Days

S28 E14 Length 56:33 Premiere Date 5/3/21

Mass Shootings and Gun Laws

S28 E13 Length 56:33 Premiere Date 4/26/21

Voting Rights and Election Laws

S28 E12 Length 56:33 Premiere Date 4/20/21

The 2021 General Assembly: Debating Major Legislation

S28 E11 Length 56:34 Premiere Date 4/12/21

Wrapping Up the 2021 General Assembly

S28 E10 Length 56:34 Premiere Date 3/29/21

School Choice in Kentucky

S28 E9 Length 56:33 Premiere Date 3/22/21

No-Knock Warrants

S28 E8 Length 56:33 Premiere Date 3/15/21

Proposed Legislation to Modify Kentucky Teachers' Pensions

S28 E6 Length 56:34 Premiere Date 2/22/21

Debating Historical Horse Racing Legislation

S28 E5 Length 56:33 Premiere Date 2/8/21

New Lawmakers in the 2021 Kentucky General Assembly

S28 E4 Length 56:34 Premiere Date 2/1/21

A Nation Divided

S28 E3 Length 56:33 Premiere Date 1/18/21

Recapping the Start of the 2021 General Assembly

S28 E2 Length 56:34 Premiere Date 1/11/21

Previewing the 2021 General Assembly

S28 E1 Length 56:33 Premiere Date 1/4/21

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Kentucky Tonight, hosted by Renee Shaw, is a public affairs discussion program broadcasted live on Monday nights at 8/7c on KET and KET.org/live.

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