Inflation expectations among U.S. households tend to rise when consumers anticipate higher gasoline prices, according to a San Francisco Fed report released August 31, 2026. The analysis found that while the relationship is moderate, the tendency for inflation expectations to move alongside gas price outlooks is asymmetric, meaning expectations rise when gas prices are expected to climb but remain relatively unchanged when gas price outlooks are revised downward.
The San Francisco Fed's August 31, 2026, economic letter highlighted that gasoline prices represent one of the most salient and volatile expenses for consumers. When gas prices rise sharply, individuals may interpret the increase as a signal regarding inflation more broadly rather than just a localized price change in fuel. This phenomenon has gained renewed attention due to recent global energy market disruptions, specifically the conflict in the Middle East and supply chain disruptions surrounding the Strait of Hormuz.
Recent data shows the significant impact of these global tensions on domestic costs. The average monthly retail gasoline price in the United States reached $4.65 per gallon in May 2026, a notable increase from the $3.06 per gallon recorded in February before the onset of the U.S.-Iran conflict. These recent fluctuations follow previous periods of energy price volatility, such as the large gas price increases that occurred after the 2022 invasion of Ukraine by Russia.
The research, which utilized the New York Fed's Survey of Consumer Expectations covering monthly data from June 2013 through June 2025, identified a distinct asymmetry in how consumers perceive these changes. According to the report, a 10 percentage point upward revision in expected gas price growth is associated with a 0.24 percentage point increase in one-year inflation expectations. Conversely, downward revisions in gas price expectations do not result in a statistically significant decline in inflation expectations, suggesting that once inflation expectations rise due to gas prices, they may not retrace those increases even if gas prices are expected to fall.
The study also noted that the correlation between gas prices and inflation is not uniform across all demographics. The tendency for inflation expectations to move with gas price expectations is strongest among more vulnerable populations, specifically lower-income and less-educated households. Additionally, increases in expected gas price growth are linked to greater perceived inflation uncertainty, as individuals see a wider range of plausible future inflation outcomes when they expect fuel costs to rise.
This relationship between commodity prices and inflation expectations has been a subject of economic study for years. In a 2021 report, the San Francisco Fed noted that as the U.S. economy began to rebound from the COVID-19 pandemic recession, a surge in commodity pricesincluding corn, crude oil, and lumberwas causing household inflation expectations to jump. For instance, the median one-year-ahead expected inflation rate rose from 2.1% in April 2020 to 4.6% in May 2021.
During that 2021 period, the S&P Goldman Sachs Commodity Index had increased more than 60% relative to its trough in April 2020. The San Francisco Fed noted at that time that while commodity price inflation has a statistically significant effect on household expectations, the sensitivity of long-term expectations to these movements is much lower than that of short-term expectations. This is because commodity price surges are typically transitory, often followed by reversals once suppliers increase production to meet demand.
The findings from the 2026 report reinforce the idea that consumer psychology plays a critical role in inflation dynamics. By comparing individuals to their own previous beliefs rather than comparing different groups to one another, the analysis confirms that upward revisions in gas price outlooks are a consistent driver of higher inflation expectations and increased economic uncertainty.
