Fuel Prices to remain high in 2023: EIA Predicts

Gas prices may have finally slipped to a one-year low — but they probably won’t stay down for long.

The U.S. Energy Information Administration (EIA) latest’s monthly forecast predicts retail prices for regular gasoline will average $3.51 a gallon in 2023, down 10 cents from its previous outlook and below the $3.99 expected this year.

Yet even after tumbling by a third in recent months, prices remain 16% higher than last year and considerably more than prior to the pandemic. Diesel also is expected to remain near all-time highs next year.

Surging fuel prices helped ignite the fast inflation rate in four decades, and the new forecast dampens expectations that the Federal Reserve has raised interest rates enough to tame it. While fuel accounts for just 8% of the U.S. Consumer Price Index (CPI), and economists tend to focus on “core” inflation data that strip out volatile energy and food costs, consumer and investors had hoped the recent pullback signaled a wider easing in price pressures throughout the economy.

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Elevated Prices Ahead

Higher interest rates aim to curb consumers’ appetite demand for goods and services, and the Fed’s rate hikes this year have pushed the economy to the brink of recession. Still, last week, U.S. retail gas prices averaged $3.39 a gallon, down from their peak of slightly more than $5.03 in mid-June and on par with year-ago levels.

As with gasoline prices, diesel prices that account for a portion of consumer goods’ costs also have decreased in recent months but likely will remain higher in 2023 than before the pandemic.
Even with the expected decline in 2023, average U.S. retail prices would remain at least 77 cents a gallon higher than any year since 2014, when prices averaged $3.36 a gallon. U.S. refining capacity is at its lowest level since then, having dropped 5.5% since 2020 as some refineries that closed when demand plunged during the pandemic didn’t reopen.5

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