By Adam Pagnucco.
President Donald Trump’s war with Iran is blowing the roof off of gasoline prices. When combined with his cuts to federal spending and employment, the dual effect threatens to create stagflation throughout Maryland and the D.C. region.
Let’s keep this analysis simple. The chart below comes from AAA’s Maryland gas prices page. According to AAA, regular gas prices are up by 36% in the Free State over the last year. Diesel prices are up by 54%.
Now let’s go to GasBuddy, a great site for finding cheap gas prices. (That has become pretty challenging now!) The chart below shows regular gas prices in the nation (blue line), the Baltimore metro area (red line) and the Washington metro area (green line) over the last 18 months. All three areas saw huge price spikes in March followed by volatility in April.
The impact on consumers is obvious. There will also be an impact on state and local governments, which are heavy users of gas and diesel. Think about the bus fleets owned by MoCo’s Ride On service and MCPS. There is no way that state and local budgets, which were largely developed before Trump’s war, have adequately accounted for this kind of spike. If it continues, expect supplemental appropriations and/or use of reserves.
Finally, those of us who are old enough to remember the 1970s know all about stagflation – a simultaneous slowdown in growth coupled with an increase in price inflation. That decade’s stagflation problem was ultimately defeated by the U.S. Federal Reserve’s dramatic hike in interest rates in 1979-82, which tamed inflation at the cost of a harsh recession.
That may or may not happen now. But state and local governments in the region are already reeling from Trump’s assault on their core industry, the federal government. The last thing they need is prolonged stagflation to go with it.