GAS PRICES AREN’T HELPING MUCH….
I keep hearing a lot of chatter about how falling oil prices are a big boost to the US consumer currently. And you’d think they would be given the 20% decline in oil prices since the March high. But national gas prices have only fallen 6% from their recent highs and just 11% from the all-time high set in 2008. Meanwhile, prices are up 130% since the trough in 2008 and up about the same amount over the 8 year period (see chart below via Gas Buddy). So, if anything, we’re right near the all-time highs and not seeing this dramatic boost to the consumer that some portray this to be.
Given, there’s a lot of moving parts here and gas prices tend to work with a lag from the faster declines in world oil markets, but the boost to the economy is not being felt in the here and now. So we’ll wait and see. If gas prices are sustained at lower levels then you’ll see the price at the pump drop much further, but for now the big drop in oil prices is not immediately translating into the big boost to the economy that everyone keeps saying it is…..
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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3 Comments
Isn’t it interesting how many analysts were saying high gas prices wouldn’t hurt consumer spending but lower gas prices will help?
Either way, great chart.
Maybe we are experiencing Inflation and Deflation at the same time. See Below:
http://www.zerohedge.com/news/guest-post-dollar-backwardation
Well two points:
What are the prices in inflation-adjusted constant dollars? Most likely more below the 2008 highs than that chart shows if it’s nominal prices.
Second point is that energy takes a smaller chunk out of people’s disposable income today than it used to do, in part because we’ve been living with high gas prices for over 5-6 years now. People adapt, buy smaller cars, commute more, find jobs closer to them or, if they are unemployed, simply don’t use that much gas to begin with.
It’s probably a small boost, but not huge. Still, don’t underestimate it.
However, having said all this, gas prices are not going under $3 a gallon at any time soon simply because the only scenario that would be possible is if the world and/or America goes into a recession. It will most likely touch around $3.50 and then slowly creep up again.
It’s the basic laws of supply and demand. Especially this decade, the demand will overwhelm supply. Maybe as soon as 2014.