Mohamed El-Erian says drivers are fooling themselves into thinking gas prices will come down — and a recent bounce will ‘erode’ that delusion

“We shouldn’t lose sight of the behavioral angle,” El-Erian wrote, citing AAA data on May 20 showing regular gas averaging over $4.55 per gallon nationally and diesel at $5.65.

El-Erian has become one of Wall Street’s most closely watched economic commentators, particularly on inflation, consumer behavior and Federal Reserve policy.

Why consumers haven’t pulled back yet

Historically, sharp spikes in gas prices have pushed consumers to cut discretionary spending, delay travel or rethink driving habits. But so far, that hasn’t happened in a major way.

Retail sales in the U.S. rose 0.5% in April, according to the latest Census Bureau data, suggesting consumer spending has remained relatively resilient despite mounting economic pressures. Meanwhile, Bank of America analysts recently noted that debit- and credit-card spending has continued growing year over year, even as inflation concerns persist.

Part of that resilience may come from the simple fact that Americans have already been conditioned by several years of elevated prices. According to AAA, the national average price for regular gas stood at just $3.17 a year ago, compared to $4.57 now. Diesel prices have climbed from $3.56 last year to $5.67 currently.

But El-Erian argues that consumer psychology matters just as much as financial reality. If households believe prices will soon fall, they may continue spending freely and avoid making larger lifestyle adjustments. The danger, in his view, is what happens if that belief starts to fade.

And there are signs that could already be happening. AAA data shows gas prices have risen again over the past week after briefly declining earlier this month, which is exactly the type of “bounce back up” that El-Erian says can weaken confidence that relief is coming anytime soon.

High gas prices can ripple through the broader economy

Gas prices don’t just affect what Americans pay at the pump. They also influence shipping costs, airline prices, food costs and inflation expectations more broadly.

The Federal Reserve Bank of Cleveland has previously noted that gasoline prices tend to have an outsized psychological effect on inflation expectations because consumers see them so frequently. That can create a feedback loop where households become more cautious about spending, even if their finances remain relatively stable.

For now, U.S. consumers are still proving surprisingly durable. But El-Erian’s warning highlights how quickly sentiment can shift, especially if elevated prices stop feeling temporary and start feeling permanent.