Clearly, the recent run up in gas prices hurts consumer spending elsewhere. Recent data and research enables us to work out just how much. The impact for the U.S. consumer may be material
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It makes sense that higher gas prices will eat into consumers wallets, hurting consumer spending and economic growth. However, it’s not immediately obvious how much. Here, academics have studied the historical impact and it appears likely to be material if the current surge in energy prices is sustained.
Broadly speaking the current picture suggests that consumers may have to cut back spending on other goods and services by 3% to cover rising energy costs.Michael Gelman at the University of Michigan and colleagues from Berkeley and elsewhere examined the one of the last major move in prices at the pump. This was actually in a different direction, a big drop in gas prices in 2014. They used machine learning against detailed consumer spending data to work out the impact.
. Of course, there findings for when gas prices fall, also help us understand what may happen as prices shoot up.Predictably it’s not good news for the current state of the U.S. economy. Any move in gas prices tends to have a direct impact on household budgets. Yes, consumers do pull back on gasoline spending when prices rise. Maybe there are fewer road trips, more carpooling and more working from home in the current environment.
However, ultimately a dollar spent on gasoline is a direct substitute for a dollar spent elsewhere for a typical household. That means that the rise we’re seeing in prices at the pump may see a direct and almost one-for-one impact on spending elsewhere.
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