High gas prices gouge Silicon Valley households

Surging gas prices will cut $1.1 billion from household income in Santa Clara and San Mateo counties this year and eliminate 2,600 jobs, according to estimates from a San Jose economic think tank.

A recent report from Joint Venture Silicon Valley shows total economic output in the two counties will drop by $706 million if the current increase of $1.36 per gallon since the beginning of the year continues unchanged through 2026.

Sticker shock at the pump is widespread, with the average gas price per gallon soaring nearly 30% to $5.98 at the end of March and premium gas hitting $6.33 per gallon.

Consumers are spending more to fill their tanks, leaving them with less money to spend elsewhere as increased energy prices push up inflation and the cost of living.

“Reducing disposable income has ripple effects throughout the economy,” Heidi Young, a senior researcher at Joint Venture and author of the gas prices report, told San José Spotlight. “That’s the big takeaway: We’re all affected.”

The impact is greatest on low-income families, Young added, because they spend relatively more of their income on gas and at the supermarket, another area of the economy hit by rapid price increases.

“We already know our region in general has higher prices for groceries — and this will exacerbate that,” Young said.

The tectonic rise in gas prices is due to the U.S. and Israel’s attack on Iran that began Feb. 28 by cutting off oil supplies that move through the Strait of Hormuz.

But the fallout from higher pump prices goes beyond gas and groceries. The report said there’s an anticipated loss of 2,600 jobs from business belt-tightening — either through layoffs or open positions left unfilled — that will cut across a wide range of industries, from housing and hospitals to restaurants and retail.

Construction is one such category, because contractors rely on gas and diesel for transporting workers and materials as well as operating machinery on job sites.

“Across the board, we’ve had to look at our pricing,” Amy Pacheco, chief financial officer of O.C. McDonald Company, a commercial plumbing and mechanical contractor in San Jose, told San José Spotlight.

O.C. McDonald, which just marked its 120th anniversary, operates a fleet of 50 vehicles, mostly pickup trucks and vans, which their employees typically drive home at night — even though some live as far away as Gilroy and Hollister.

The company has a 10,000-gallon underground fuel tank that allows for bulk gasoline purchases. Pacheco said a recent refill cost $4.63 per gallon — well below retail pump prices, but still a whopping 50% above the $3.08 per gallon O.C. McDonald paid in January.

“We can’t stop driving and we can’t drive less,” Pacheco said.

Instead, the company has to look elsewhere for cost savings and will ultimately have to pass some increases along to their clients, Pacheco added.

Jeff Bellisario, executive director of the Bay Area Council Economic Institute in San Francisco, said the psychological effects of such a sudden jump in gas costs could cause consumers and businesses to rein in their spending, even though the economy as a whole is still healthy.

Wages on average are going up faster than prices, he said, and the total number of jobs is growing, with unemployment holding steady.

“I don’t think this is the tipping point that sends the economy under,” Bellisario told San José Spotlight.

Contact Mike Langberg at [email protected].