Hurricane Ida is set to push up gasoline prices, which threatens consumer spending and GDP, Moody's says
- Hurricane Ida is set to cause higher gas prices, which could weigh on consumer spending and GDP, Moody's Analytics said.
- Moody's analyst Ryan Sweet said 2005's Hurricane Katrina pushed up gas prices and knocked on spending.
- So far the energy market's reaction has been muted, but Moody's said higher gas prices are coming.
Hurricane Ida is set to push up gasoline prices, which could weigh on US consumer spending and gross domestic product, Moody's Analytics has said.
Ida made landfall on Sunday, causing widespread destruction and leaving more than 1 million people without power in Louisiana. President Joe Biden declared a "major disaster" in the state. The hurricane was downgraded to a tropical storm on Tuesday.
Moody's Analytics analyst Ryan Sweet said in a note on Monday that Ida's economic costs could quickly mount. "As with [2005's] Hurricane Katrina, Ida could have a more significant impact on GDP via higher energy prices," Sweet said.
Despite causing 96% of US oil production in the US Gulf of Mexico to shut down, according to the Department of Energy, energy markets had shown relatively little reaction to Hurricane Ida as of Tuesday. But Sweet said: "Higher prices at the pump are coming."
"After Hurricane Katrina in 2005, gasoline prices jumped from $2.61 to $3.07 per gallon," Sweet said. "The magnitude of the increase in gasoline prices will factor into the hit to consumer spending and GDP... Real consumer spending fell in August and September 2005 because of the rise in gasoline prices."
Yet Sweet said the hit this time around may be smaller because consumers are sitting on more than $2.5 trillion in excess savings built up during coronavirus lockdowns.
Sweet stressed the economic costs of Ida cannot yet be known. He said the overall hit to US GDP was likely to be marginal, although higher gas prices may cause more damage.
WTI crude futures, the US benchmark, were down 0.17% to $69.12 on Tuesday. The national gas price average was up a penny to $3.15 a gallon on Monday, according to the American Automobile Association.