Gas Prices Matter To U.S. Households, But Only Somewhat


Starting in late 2014, U.S. gas prices began to drop significantly, and they've remained comparatively low throughout 2015.

With the arrival of the summer travel season, analysts expect prices to increase--as they customarily do at this time every year.

That leaves the question of how consumers will react to a potential end of the good times.

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If gas gets more expensive again, will people drive less? Or will they cut spending in other areas?

It appears that demand for gasoline is more or less inelastic, but that fuel costs represent only a small fraction of the average U.S. household's budget, according to an analysis by the Brookings Institution.

Because most people use their cars for commuting and other essential tasks, they can't dramatically cut the amount of fuel they buy when prices climb.

Fuel gauge

Fuel gauge

Enlarge Photo

A comparison using Energy Information Administration and Bureau of Labor Statistics showed that gas prices and consumers' relative expenditures on gas remained in lockstep between 1993 and 2013.

When gas prices increased, so did spending. When gas prices went down, spending went down.

But no matter how much Americans spend on fuel, it still represents only a small percentage of their overall outlays, the analysis found.

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Over the past 25 years, it represents around 5 percent of spending in the average U.S. household.

That puts fuel in the same ballpark as expenses like entertainment and clothing.

It was found to be well behind major expenses like housing, food, and healthcare--and even other forms of transportation (airline tickets, for example).

That leaves the impression that gas prices do matter to consumers--in part because they're visible at every refill--but only somewhat.

Of course, that doesn't mean consumers couldn't be financially crippled by a major increase in gas prices.

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Since the amount of fuel most people buy can't really be decreased, they will always spend more money when gas prices rise.

And there's been no real test of whether there does exist a limit on how high those prices can go.

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