Gasoline prices are quickly approaching the “politically sensitive” $4 per gallon mark. Analysts claim that at this price, consumers make the conscious decision to drive less. This month’s surge in retail fuel prices (gasoline and diesel) marks the largest increase on record, with gasoline only 4 cents below the precarious $4 line.
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Prices of fuel are delivering a nasty shock to the pocketbooks of cash-strapped consumers, who are already being pummeled by ridiculous housing costs and inflation of grocery prices.
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Bonnie Herzog, managing director and senior consumer analyst at Goldman Sachs, wrote in a note that when fuel prices spike to these “psychological threshold” levels, above $3 and approaching $4 a gallon, consumers tend to drive less and fill up their tanks less frequently.
“Historically, when retail gas prices increase (especially above the $3/gal psychological threshold, although that’s been rebased higher), consumers make the concerted decision to drive less, don’t always fill up their tanks (i.e., lower fill rates),” Herzog told clients on Friday, accoridng to a report by ZeroHedge.
Herzog added that when looking back on history, the real “demand destruction” for drivers comes when gasoline prices at the pump reach $5 a gallon. She noted, “Further, we recognize that, in times of a significantly rising fuel-price environment, consumers may opt to trade down the fuel-price spectrum (i.e., from premium to regular).”
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She also warned that elevated “retail prices at the pump matter” because “low-income households spend 3x more of their incomes on gas vs. the average household, and broadly speaking, c-stores over-index to low-income consumers.”
Things could worsen for the current ruling class if these prices are not temporary. The Trump Administration is also looking to fix the problem it has, although threatening Iran with more attacks if it doesn’t open the Strait of Hormuz could go arry very quickly.
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