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Almost 40 percent of Americans' tax cut goes to pricier gas

Quartz logo Quartz 7/12/2018 Dave Edwards

Gasoline prices in the US are up around 15% since the start of the year, due to price increases in the global oil market. That equates to an increase of about $30 per month in how much the average American consumer spends on gas, according to Bank of America Merrill Lynch analysts.

For the typical consumer, the increase in monthly spending consumes almost 40% of the tax cut benefit of $78 per month, the analysts estimate.

And it looks like interest rate hikes, combined with higher consumer prices resulting from tariffs, could cancel out even more of the tax cut this year.

Increases in rates by the Federal Reserve will likely be passed along to borrowers in many adjustable-rate products like credit cards. If the Fed hikes rates four times this year—a good bet—its benchmark rate will rise by a full percentage point. According to calculations by NerdWallet, a 1% increase by the Fed would boost the average household’s interest payments on credit card debt by $5 per month.

On tariffs, it’s anyone’s guess how severe the current trade war could get. But Bank of America Merrill Lynch analysts estimate that a 10% tariff on imports from China would increase US consumer prices by 0.2 percentage points. For the average American, that adds an extra $10 per month to their usual purchases.

By the end of the year, then, the extra $78 per month that landed in Americans’ pockets from the tax cut could potentially erode to $33 a month, once increased oil prices, higher interest rates, and the impact of a trade war all take their cut. Don’t spend it all at once.

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