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By New_Deal_democrat January 22, 2014 10:30 am
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Gas prices: the long winter of consumer content

The EIA reports that the price of gas fell in the last week to $3.30 a gallon.  There's nothing particularly special about that.

What IS of interest is that gas prices have been at or below $3.33 a gallon for the last 3 months. Typically there is a seasonal trough in December into January in gas prices, as usage is at its nadir and before refineries switch over to the warm weather formulation.

This year, however, the trough has lasted unusually long.  As indicated above, at nearly 3 months it is almost 1/4 of the entire year.  Here's the graph, from Gasbuddy, showing the price of regular gasoline for the last 3 years:

One of my important themes in economic reporting in the last few years is how there has been an "Oil choke collar" applied to the US economy, since gas prices rose from a generational low of about $0.80 a gallon in early 1999 through $4.25 a gallon in July 2008.  At one point Prof. James Hamilton estimated that fully half of the economic damage done in the "Great Recession" was due to this gas price spike.  Since the recession, the price of gas has acted like a governor on the economy.  When the economy shows signs of "escape velocity," gas prices rise, cutting into consumer spending, and the economy cools down.  This in turn causes gas prices to fall, freeing up consumer cash.  And the cycle has repeated about half a dozen times in the last 4 years.

The Oil choke collar began to loosen in 2013, as for most of the year, prices were actually lower than they were in 2012 (indeed the YoY trend has been deceleration followed by outright decline since 2011), as shown in this graph:

Prices are also at the same level they were 2 years ago, and only about 6% higher than they were 3 years ago.   This is virtually the entire reason why real wages have risen in the last year or so.  It is an important factor in why the economy has continued to expand.

Prices should start to rise seasonally any day now.  In the last three years, from late January to late February, gas prices have risen about 5 cents a week, and then 10 cents a week for several weeks thereafter.  It will be interesting to see if the pattern holds true this year, or if the loosening of the Oil choke collar extends through the spring driving season as well.

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