The national average gas price is poised to surpass the $5 mark

Gasoline prices are about a cent below the unprecedented national average of $5 a gallon, and it’s unclear how Americans — and the economy — will react.

Why it matters: Pump prices play an outsized role in Americans’ minds, and are often seen as a harbinger of everything from falling presidential approval ratings to ugly recessions.

Driving the news: The U.S. daily average price for a gallon of regular gasoline rose to $4.99 Thursday morning, according to AAA.

• And rising prices in the wholesale futures markets – which are leading indicators of retail prices – suggest there is little hope of near-term relief.

Game Status: Aside from the brief, unique COVID recession of 2020, 10 of the 11 recessions the US has experienced since World War II were preceded by sharp rises in energy prices.

How it works: In general, it is assumed that a sharp rise in oil prices – and therefore also in petrol prices – reduces consumption.

• They leave people with less disposable income to do their daily shopping after paying higher energy bills and unsettle people about the future. This causes them to delay buying large items like cars and washing machines, and to put any extra money they can into precautionary savings.
• All of this can slow down a heavily consumption-driven economy.

Yes but: Economists who have studied the relationship suggest that the price spikes that have historically preceded recessions may be a case of correlation rather than causation.

• For example, in academic papers, former Federal Reserve Chairman Ben Bernanke and co-authors have argued that it is not the energy shock that is causing the collapse, but rather the Fed’s efforts to limit the inflationary impact of rising energy prices through interest rate hikes .

Although consumer We’ve never seen such high prices at the pump, we’re still a little short of the ‘real’ or inflation-adjusted record high.

• This happened in June 2008 when gasoline prices hit about $5.44 in today’s dollars. some see that previous peak was the drop that broke the spine of the American consumer.
• High gasoline prices squeezed household incomes and triggered a cycle of mortgage defaults – on incredibly badly underwritten loans – that then spiraled into a financial crisis and a deep recession.

Note: Historical data is annual, monthly and weekly since 1990; Data: energy information management; Diagram: Axios Visuals

Yet economic suffering means political suffering for the party in power.

• $5 gas threatens to turn a difficult pre-midterm political environment into a downright grim one for Democrats.

What’s happening: The surge in prices above a never-before-seen big round figure will only make inflation a more central issue. Go Deeper (<1 min read)

• Gallup polls show inflation is now America’s top economic concern, for the first time since 1984.
• Pew Research recently reported that seven out of ten respondents see inflation as a major problem.
• “No other top company comes close,” the Pew analysts wrote.

Between the lines: Gasoline prices matter enormously in the auto-dependent suburbs, an area where President Biden and the Democrats are said to have essentially won the 2020 election.

• Major swing states like Michigan, Ohio and Wisconsin are also now experiencing some of the biggest increases in gasoline prices, according to the AAA.

The bottom line: If history is any guide, the prospects for the economy – and the party in power – are becoming more uncertain by the day.