and policy challenges. We consider two concerns here. First, to what extent are gas prices contributing to broader inflationary pressure? For the American economy, three reasons are currently pressuring consumer prices (1) energy prices increase, across all fuel categories; (2) heightened tariff rates; and (3) continued economic growth and labor market resilience. The first two are supply-side issues; the third is a demand- side issue. Increasing interest rates—an option now being discussed by some Federal Open Market Committee (FOMC) members—may not curb inflation unless economic demand is the primary driver of rising prices. Second, futures markets for petroleum and gasoline help prolong higher gas prices. The longer spot prices for oil and gas remain elevated, futures markets can reinforce those higher price expectations for commodities, driving higher wholesale prices over time and lingering pressure in retail energy markets. This is especially true for energy-dependent firms such as airlines. Seasonality is a concern as the North Bay
enters the classic driving season in the United States. Will rising gas prices affect traveler demand? For the North Bay, the effects may be more mixed than in heavily tourism-dependent destinations such as Disneyland. Because airline prices have increased, including additional costs like baggage and seat selection once tickets are purchased. Residents of the greater Bay Area may opt for closer-to-home travel this summer, viewing Napa and Sonoma as alternative destinations until broader travel costs ease. With more driving, however, the demand side of the market puts pressure on fuel prices. It should be an interesting summer for energy prices unless there is an abrupt end to tensions and conflict around the Strait of Hormuz. On the positive side, the situation may
accelerate investment in renewable energy strategies. While artificial intelligence (AI) and related industries are attracting significant investment, this is a great time to consider how to further reduce American dependence on fossil fuels beyond our current adoption rate of renewables. The straight story is that a good crisis should not be wasted, and renewables are becoming a new focus of policy, perhaps merged with AI to increase efficiency. g
Founded in 1890, Exchange Bank is a full-service community bank serving the North Bay through a network of local branches and relationship- based banking services. Guided by a longstanding commitment to community investment, the bank continues to support local businesses, families and students through initiatives including the Doyle Trust scholarship program.
Dr. Robert Eyler is professor of economics at Sonoma State University and president of Economic Forensics and Analytics in Sonoma County.
Where Ideas Are Born 2026
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