Gas Prices: How Long Will Americans Pay Exorbitant Prices?

In the week ending last Saturday, there was a 5% decrease in the amount of gas pumped into US gas stations compared to the same week a year ago, according to OPIS, which tracks gasoline prices and consumption data. That modest decline occurred with the national average price rising from $3.04 a gallon on May 29, 2021 to $4.60 a gallon on May 28 this year, according to OPIS data from AAA.

Usually when the price of a good goes up, its consumption goes down, a process known as “demand destruction.” But gasoline is what economists call “inelastic” buying, which is what it means Consumption is not significantly affected by its price.

Gasoline consumption shows no signs of slowing even in states with the highest average prices, such as California, where the statewide average is now $6.21 per gallon, the highest in the country.

“We’re seeing demand destruction around the world, but in the US it looks like people are going to be stubborn about it,” said Tom Kluza, global head of energy analysis at OPIS. “California taught us that $6.20 a gallon can be afforded.”

Kloza said the data shows drivers change their fuel Purchases for low-priced stations, such as those at large retailers Such as costco (cost), and far from the more convenient but more expensive stations owned by individual operators. He believes consumers are taking modest steps to reduce driving, such as stopping at one trip and running errands, rather than making multiple trips to different stores.
As for mobility, Klosa said it’s possible to have a lot of people Ability to work from home They started cutting back on their trips to the office. Others may use public transportation or carpool to work.
The significant increase in people working at least part-time from their homes, and the fact that the US economy has So now to restore all functions Before the pandemic, it helps explain why consumption has fallen by about 15% since 2019, when there was record use of gasoline in the United States.

But even with this 15% drop in consumption, drivers are spending much more on the pump than they were before the pandemic, with prices up 67% compared to the same period in 2019. This is a problem for the economy in general, as it can force consumers to cut back. Spend them on other items.

“I think people are going to be a lot more frugal with their leadership,” said Mark Zandi, chief economist at Moody’s Analytics. “The hit will be in other forms of discretionary spending.”

The typical American household buys about 90 gallons of gasoline a month, Kloza said, so raising the price from $3.04 a year ago to a record $4.72 a gallon in Thursday’s reading would cost an extra $150 a month.

The country’s overall economy is primarily driven by consumer spending, so if consumers back off on other discretionary purchases—eating out, buying clothes, vacations—it will be Zandi said there are significant headwinds, even if the country’s energy sector gets a boost as a result.

“The general rule is that every $10 increase in the price of a barrel of oil reduces a tenth of a point in gross domestic product,” Zandi added, referring to gross domestic product, the broadest measure of a country’s economic health.

Data up to April show Consumer expenses Zandi said it held up fairly well despite gasoline prices, which were already hitting record levels.

Spending at retailers other than gas stations increased 1% in April compared to March and increased 6% above April 2021, even as spending at gas stations increased 37% over the past year due to higher prices.

Why US gas prices have risen to a record high, and why they will remain high for a long time

Zandi said spending on other items is likely to be affected as gas prices continue to climb from their levels in April. This could change people’s view of the economy itself, leading to a change in behaviour, because if there is one product in which consumers are very price conscious, it is gasoline. “I think oil and gas prices play a huge role in people’s thinking, the economy and their financial situation.”

Zandi is also concerned that if oil prices continue to rise, driving up inflation, the Fed will be forced to take a more aggressive approach to raise interest rateswhich could push the economy into a recession.

“With oil prices at $115 a barrel, it’s very uncomfortable,” Zandi said. This is close to the level that was traded in oil futures contracts midday Thursday. “At $130 a barrel, we’re on edge. If the price gets to $150 a barrel, I don’t think there’s any way we can’t go into a recession.”