Michigan families should strap in for high prices at the pump and supermarket, even as proposals are floated to alleviate some costs.
Need to Know
- Gas prices average more than $5 a gallon nationally and more than $5.20 in Michigan.
- State Republicans and Democrats are talking about temporarily suspending taxes on gas.
- Inflation is driving costs up across the board, but experts aren’t optimistic about short-term fixes.
MICHIGAN—Ordinarily, road trip season would be nearing full-speed in Michigan, but sky-high gas prices have made voluntary travel tough–especially at a time when financial pessimism and high inflation have families watching every penny.
As of June 15, gas prices in Michigan hovered around $5.21, topping the national average by 20 cents, according to AAA. It’s the first time the national price of gas has ever been $5 or more per gallon.
Gas prices remain high for a litany of reasons—chiefly Russia’s continued war on Ukraine and an imbalance in supply (which was low) and demand (which is suddenly higher). The decline of Russian exports have also made oil a hotter commodity on the global market, driving prices up. Meanwhile, as countries around the world shake off the dust and reopen offices and businesses, global demand for oil has shot up.
Across the board, US prices for common goods, not just gas, have stayed well above the norm, with little optimism for immediate relief.
In its June report, The University of Michigan’s Surveys of Consumers Research Center found that consumer sentiment declined 14% from May, dipping down to a level of pessimism not seen since the 1980s recession.
“Overall, gas prices weighed heavily on consumers, which was no surprise given the 65 cent increase in national gas prices from last month,” writes director Joanne Hsu on the Surveys of Consumers website.
In interviews conducted by the research center, which has measured public sentiment about the economy since 1945, half of all consumers spontaneously mentioned gas as a pain point during their interviews.
Both federally and locally, leaders are trouble-shooting and solution-searching to drive prices down, but there has been disagreement in Michigan on how best to do that.
At the Mackinac Policy Conference two weeks ago, Gov. Gretchen Whitmer was noncommittal on a GOP Senate plan to temporarily suspend Michigan’s gas tax and sales tax for gas purchases for two months this summer, though she suggested that negotiations had progressed. Hesitation from prominent Democrats stems from how the suspension might impact the state’s School Aid Fund, the central funding mechanism for Michigan public schools.
Michigan’s gas tax is 27 cents per gallon, while Michigan’s sales tax on gas is 6%. If passed, the suspension package would cause the School Aid Fund to lose hundreds of millions in revenue, according to the nonpartisan Senate Fiscal Agency’s analysis. Nearly three of every four dollars from the state’s sales tax on gas goes to the School Aid Fund.
Republicans have recommended using surplus money from the state’s budget to fill the gap, and Whitmer has assented on the condition that legislature Republicans pass an income tax rebate for middle- and working-class families.
Whitmer told the Detroit News that she wants $500 checks sent to working families with a combined income of $250,000 or less to help offset inflation, dubbing the proposal “inflation relief payment.” Families with children would get another $100 each. Senate Leader Mike Shirkey called the proposal “pandering.”
That package of gas tax bills is currently in the state House, after passing the Senate with bipartisan support. In March, Michigan Democrats rejected a similar plan with a greater duration, saying it would force road repair and infrastructure projects to halt in their tracks. Michigan’s fuel taxes fund local and state road commissions.
Democrats have also accused Republicans of “political theater,” saying that their solutions would force other critical programs to crumble.
“I do think that some sort of a gas tax holiday, sales tax, could be helpful to people who are struggling,” Whitmer said, as quoted by MLive. “I’ve been very clear, though; I’m not interested in theater.”
On Wednesday, the Federal Reserve announced a historic federal interest rate designed to force down inflation. The Fed hopes that higher interest rates—which will be felt by banks—will lower consumer demand and even out the market, as the cost of doing business increases.
Also on Wednesday, President Joe Biden issued a broad threat of federal intervention to oil companies, demanding they expand their supply to drive down costs at the pump. Biden pointed to oil companies’ profit margins during the pandemic, claiming that they were capitalizing on market uncertainty.
“The crunch that families are facing deserves immediate action,” Biden wrote in a letter to seven oil refiners. “Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis.”
Oil companies, however, haven’t budged and have pushed back against the president’s message, claiming that they’re still ramping up production capabilities. The Associated Press reports that the letter is unlikely to trigger lower prices any time soon.
High gas prices and high inflation have led to a trickle-down effect, with businesses passing along their increased costs to consumers. People should pay off debts, such as large credit card bills or loans with variable interest rates, if at all possible to avoid incurring higher rates following the Fed’s decision.
Expensive gas and groceries aren’t just a US problem, however, meaning that domestic solutions are likely to have only so much of an impact. Inflation in the US hovers just slightly above the global average, at 8.6% here compared to 7.9% globally, and other world leaders have taken on similar measures—like gas tax suspensions and hiking up the federal interest rates. Still, the global market is struggling to adjust.
With no immediate fix in sight, experts are warning people across the country to buckle in and budget for an extended period of inflation, even if temporary relief comes through.
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