Economists see signs that drivers are reaching the threshold of price pain
A record number of Americans are hitting the road this Independence Day weekend, including a record 3.1 million Texans. And they’re not letting record-high gasoline prices derail their plans.
Still, economists at the Federal Reserve Bank of Dallas believe higher prices could eventually push drivers to their limits.
“All told, fuel prices may be closer to consumer pain thresholds than inflation-adjusted prices suggest. And if prices rise, expect consumers to respond by reducing fuel consumption and overall spending,” Garrett Golding, the bank’s senior business economist, wrote in a recent blog post.
Expanding on that thought via email with the Reporter-Telegram, Golding said the national average for gasoline is down about 15 cents over the past two weeks. “But we’re still $1.50 above where we were in February. Any regression is welcome, but it will not be enough to seriously improve the situation for most consumers,” he wrote.
In some sense, Golding continued, high fuel prices are beginning to lead to demand destruction.
“US gasoline consumption was on track to meet pre-pandemic levels at the start of the year, but since early March it has gradually moved away from that path. This suggests that consumers are changing their behavior. What we have yet to see is a major decline in fuel consumption,” he wrote.
While it’s too early to gauge the impact on consumer behavior, they suspect work-from-home options are having an impact, he explained. Travel fuel consumption is estimated at 30 percent of gasoline consumption.
“One way to adapt to higher pump prices is to not go to the office as often, which wasn’t an option for most workers until COVID,” he wrote. “Another part of this is that people are postponing some journeys or being more judicious about how much and how far they drive. It’s hard to say how much of an impact either of these factors will have.
Demand for travel remains high amid the easing of COVID-19 restrictions, which could encourage continued fuel use despite higher prices, Golding predicted, and only provide a temporary boost in August, when the traditional summer travel season tapers off.
That trend has been noticed by the Texas chapter of AAA.
“So far, we are not seeing an impact on automobile travel relative to leisure travel due to gas prices,” agency spokesman Daniel Armbruster told The Reporter-Telegram by email.
He said, “I wouldn’t be surprised to see gas prices come back in July, and could they break higher records in some parts of the country? We’ll have to wait and see.”
Golding said diesel prices are at record highs and the situation is likely to get worse for diesel consumers this year.
• Owners of the top-selling US vehicle, the Ford F-150, who drive average miles in 2021 will pay $157 more per month, or $1,886 more per year, on fuel at $5 per gallon in December 2021 compared to an average of $2.20 per gallon at the pump.
• For a US worker in the first quarter of earnings — down 25 percent — 9 percent of earnings now go toward gasoline purchases, up from 4 percent a year earlier.
• High diesel prices put a heavy burden on agricultural production and, in turn, drive up prices at the grocery store. A farmer would pay $27,500 today to harvest 1,000 acres of corn at five gallons of diesel per acre, compared to $16,400 in 2021.
“Refinery capacity is under pressure overall, but this is particularly true for distillate production and there appears to be no answer in the near term. This is driving up costs significantly for the oil sector, freight and particularly agriculture,” he wrote.
