Energy Crisis Signals Return of 1970s Inflation

October 22, 2021

In a Forbes opinion piece this week, Dan Eberhart, CEO of Canary, wrote on how the growing energy crisis is causing prices to rise for groceries, cars, and everything in between.

The article reports:

Today, oil prices are trading over $80 a barrel even though oil demand has not returned to pre-pandemic levels yet. Many experts think it is only a matter of time before they reach $100. 

Meanwhile, natural gas prices in Europe and Asia have spiked to record levels of the oil equivalent of around $200 a barrel due to commodity shortages ahead of the peak winter season. 

Eberhart draws a direct line to America in the 1970s when oil shocks and extreme inflation defined the economy. While there are differences between the U.S. economy then and now, the inflation numbers speak for themselves.

The average retail gasoline prices in the U.S. are now around $3.30 a gallon. Gasoline and diesel prices are both well above $4 in some key markets like California. The $4 a gallon mark has typically been a red line, after which consumers start limiting their consumption. 

High fuel prices are also pushing up costs for deliveries of all goods, which threatens to stoke inflation further. 

Household expenditures for all major home heating fuels will soar this winter, putting a huge, unexpected burden on consumers. 

Compared with last winter, the U.S. Energy Information Administration forecasts propane expenditures will rise by 54%, heating oil by 43%, natural gas by 30%, and electricity by 6%. That means Americans will have less disposable income to spend on other goods and services.

OPEC is now in charge of the oil market, and Russia, the most critical gas supplier to Europe, has enormous sway over the gas crisis. The Biden administration’s energy policies have weakened our domestic oil and gas industry and bolstered energy from foreign countries. Biden has put our energy independence and national security in jeopardy. Unfortunately, American citizens will continue to have to pay for this administration’s ill-informed policies.