March 23, 2026
Are Gas Price Spikes a Blow to Retail Spending?
The surge in gas prices since the start of the Iran war is expected to deliver more of a psychological than material impact to consumers.
Harriet Torry, economics correspondent for the Western U.S. for the Wall Street Journal, estimated in a podcast that Americans spend only about 3% of their income on energy services like electricity and natural gas — with bigger expenditures including housing, 33%, and food, 14%. However, continually noticing higher gas prices takes its toll on consumer sentiment.
“This is actually quite a small part of American’s day-to-day spending, but because it’s such a visible part — people are just very aware of gas prices because you drive around all day and you see them everywhere you go,” said Torry. “So when they go up, you think, ‘Oh yeah, okay. Why is that happening?’ And swings in gas prices do have an impact on the way that people feel about their ability to continue spending.”
“Gas prices carry outsize psychological weight,” eMarketer stated in a recent analysis, “Prominently displayed and paid frequently, increased pump prices keep inflation concerns front and center, squeezing household budgets and dampening consumer sentiment. Over the past half-century, rising gas prices have typically lifted inflation expectations.”
On Monday, nationwide unleaded gas prices hit $3.96 a gallon on average, up 33% from $2.98 a gallon on Feb. 26 — two days before the U.S. and Israel attacked Iran, according to AAA. Israeli strikes on Iran’s vast offshore gas field and Iran’s closure of the Strait of Hormuz, a critical trade passage that facilitates a significant share of the world’s oil and natural gas trade, have helped drive the increases.
Beyond prices at the pump, the conflict is expected to pressure inflation in other ways depending on its length, including in higher transportation costs for delivery trucks, cargo planes, and ships. The Strait of Hormuz is also a chokepoint for fertilizer and pharmaceutical supply chains.
Continued Iran Conflict Could Drive Gas Prices, Overall Inflation Higher
Federal Reserve Chair Jerome Powell said Wednesday that the war will drive inflation higher.
He said, “The implications of events in the Middle East for the U.S. economy are uncertain. In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy.”
Citing the impact of higher oil prices, Oxford Economics on Friday lowered its forecast for U.S. consumption growth this year from 2.5% in February to 1.9%, which would mark the slowest pace since 2013, excluding the pandemic. The higher prices are expected to impact lower- and middle-income consumers the most. The advisory firm said, “We had anticipated a lift in spending from a bumper tax refund season, but the rise in gasoline prices, if sustained, would more than offset that boost.”
BrainTrust
Tom Ryan
Managing Editor, RetailWire
Recent Discussions
Discussion Questions
How do you see the recent spike in gas prices affecting consumer spending?
Do you agree that higher gas prices drag down consumer sentiment more than higher costs of many other goods and services?
Poll
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As noted in the article, the big impact on consumers is the psychological impact of seeing higher pump prices every time they drive down the street, not just when re-fueling. But for transport companies, and the entire supply-chain that delivers products to retailers, higher fuel costs will eventually impact the cost of most goods, and consumers will feel that.
Price spikes for frequently purchased products and services are always in danger of impacting consumer spending, especially in lower to middle income households with tight budgets. Price sensitivity for gas is a natural outcome of easily one of the most emphasized products on earth, singularly posted in large formats on street corners, competing daily for share of mind. The more consumers memorize a price, the greater sensitivity or reaction to changes.
Rising gas prices have both a direct and indirect impact on consumer spending. Directly, they reduce disposable income—what consumers spend at the pump is money not available for discretionary categories. Indirectly, higher fuel costs flow through the entire retail value chain. Transportation, distribution, and energy costs all increase, and like tariffs, those pressures ultimately show up as higher prices on goods across categories. That creates a compounding effect: consumers are paying more to get around and more for what they buy, which can tighten budgets and shift spending toward essentials.
I do agree that gas prices have an outsized impact on consumer sentiment, often more than other categories. Gas is one of the most visible and frequently purchased expenses—consumers see the price every time they drive by a station, which makes it a real-time signal of economic pressure. Even if the actual financial impact is comparable to other rising costs, the visibility and frequency amplify its psychological effect. When gas prices spike, it tends to trigger a broader perception that “everything is getting more expensive,” which can quickly dampen confidence.
For retailers, the implication is not just softer demand but more selective, value-driven behavior. Shoppers may not stop spending altogether, but they will trade down, delay purchases, and become more promotion-sensitive. When fuel-driven inflation is layered on top of other pressures—such as tariffs or broader cost increases—it reinforces a cycle in which both costs and sentiment work against discretionary growth.
Women control a lot of household spending, and they’re already pummeled at the grocery store. And Mark is correct in that higher petroleum prices will result in more expensive products due to shipping spikes. Combine that with chaos at airports and consumer sentiment is going to continue to nosedive.
The effect is – or will be – largely timeline oriented: i.e. the longer they last, the greater will be both the real and perceived impact (neither of which should come as a surprise, of course).
As to why gasolene attracts disproportionate attention, there are a number of reasons:
1) The increases are usually – or at least often – very rapid, and large;
2) it’s somthing everyone (more or less) buys,
3) It’s a necessity, with no real possiblity of substitution.
On a positive note, unlike most items, people also realize the prices are likely to come down in time.
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As noted in the article, the big impact on consumers is the psychological impact of seeing higher pump prices every time they drive down the street, not just when re-fueling. But for transport companies, and the entire supply-chain that delivers products to retailers, higher fuel costs will eventually impact the cost of most goods, and consumers will feel that.
Price spikes for frequently purchased products and services are always in danger of impacting consumer spending, especially in lower to middle income households with tight budgets. Price sensitivity for gas is a natural outcome of easily one of the most emphasized products on earth, singularly posted in large formats on street corners, competing daily for share of mind. The more consumers memorize a price, the greater sensitivity or reaction to changes.
Rising gas prices have both a direct and indirect impact on consumer spending. Directly, they reduce disposable income—what consumers spend at the pump is money not available for discretionary categories. Indirectly, higher fuel costs flow through the entire retail value chain. Transportation, distribution, and energy costs all increase, and like tariffs, those pressures ultimately show up as higher prices on goods across categories. That creates a compounding effect: consumers are paying more to get around and more for what they buy, which can tighten budgets and shift spending toward essentials.
I do agree that gas prices have an outsized impact on consumer sentiment, often more than other categories. Gas is one of the most visible and frequently purchased expenses—consumers see the price every time they drive by a station, which makes it a real-time signal of economic pressure. Even if the actual financial impact is comparable to other rising costs, the visibility and frequency amplify its psychological effect. When gas prices spike, it tends to trigger a broader perception that “everything is getting more expensive,” which can quickly dampen confidence.
For retailers, the implication is not just softer demand but more selective, value-driven behavior. Shoppers may not stop spending altogether, but they will trade down, delay purchases, and become more promotion-sensitive. When fuel-driven inflation is layered on top of other pressures—such as tariffs or broader cost increases—it reinforces a cycle in which both costs and sentiment work against discretionary growth.
Women control a lot of household spending, and they’re already pummeled at the grocery store. And Mark is correct in that higher petroleum prices will result in more expensive products due to shipping spikes. Combine that with chaos at airports and consumer sentiment is going to continue to nosedive.
The effect is – or will be – largely timeline oriented: i.e. the longer they last, the greater will be both the real and perceived impact (neither of which should come as a surprise, of course).
As to why gasolene attracts disproportionate attention, there are a number of reasons:
1) The increases are usually – or at least often – very rapid, and large;
2) it’s somthing everyone (more or less) buys,
3) It’s a necessity, with no real possiblity of substitution.
On a positive note, unlike most items, people also realize the prices are likely to come down in time.