‘Extreme Acute Shock’ of Gas Price Spike Impacting Northland

DULUTH, Minn. – Russia’s invasion of Ukraine is being felt by people in the Northland through higher gas prices.

AAA says as of March 8, Superior has seen its average price for a gallon of unleaded regular go up 62-cents over the past week to $4.03.  Duluth have seen a 52-cent increase over the past week to $3.88.  Nationwide, the average price for gasoline has not been this high since July of 2008.

Monica Haynes, Director of UMD’s Bureau of Business and Economic Research says the spike shows how large of an impact Russia has in the world’s oil market.  While the United States can increase its own production to help offset what they would have gotten from Russia, there is still a need for importing oil from overseas.

“We have other sources like Nicaragua, Columbia, Saudi Arabia, and there are other options,” says Haynes, “but in the short term, those options are limited.

“This is a global commodity, and so it takes some time for the United States to shift to other suppliers and the price going up worldwide will still have an impact.  Then all of this is added onto the existing impacts of inflation.”

Haynes’ analysis of the situation does lead her to believe that the price spike could be relatively short termed, possibly around a month long.  That does not mean they will go back down to where they were back in early February.  “These kinds of shifts, I think, takes some time and work their way through.”

Haynes adds the rise in gas prices will impact everyone, but some more than others.  “It will really impact those lower-income households a lot more where they don’t have as much ability to shift spending to other things.  If gasoline is taking up a larger portion of your budget, do you have to then take the bus, or are you eating into saving or just purchasing less other types of discretionary services?”

The impact will also be felt by businesses, who will be trying to balance this gas price spike with the rising costs for other supplies due to inflation and what impact it could have on how much customers pay for their services and goods in the long term.  “Can businesses kind of hold off on raising prices from this shock and hopefully prices will go back down,” says Haynes, “or is it going to last longer, in which case they would have to continue to raise prices more, which no one wants.”

In the end, Haynes will be watching to see how the overall economy will be impacted by the price spike and if it could halt the growth that has been seen in the past few months.  “The economy is just starting to get back to ‘normal’.  People are starting to go out again and travel, and businesses are starting to feel that there’s an end in sight.  Now with this, obviously businesses are going to be struggling to pay for gasoline as an input to their own production.  People might not be able to go out and spend on dining and consumer goods; may not travel as much.  It’s really coming into spring and summer; it’s not good timing in that respect.”