Economy Watch: The Price of Oil Starting to Change Consumer Behavior
- Apr 12, 2011
It seems that there’s some elasticity in the demand for gasoline among U.S. consumers. Exactly how much is still a matter of conjecture and a function of how much more prices spike in the summer ahead, but in any case, now that the price of gas is headed skyward, demand for it is responding by dropping, just as it did in early 2008, before the most recent oil bubble burst.
During the first full week of April 2011, U.S. drivers bought 2.7 billion gallons of gas, according to MasterCard Spending Pulse, which tracks sales at about 140,000 gas stations nationwide. That’s a 3.6 percent drop in sales compared with the same week in 2010, when gas was roughly 80 cents a gallon cheaper.
Americans aren’t driving as much as they did last year, for one thing. Also, sales of fuel-efficient cars are up, just as they were in ’08. Recently Hyundai reported, for instance, that March 2011 sales of its Sonata hybrid and Elantra (not a hybrid, but about as fuel-efficient as one) were up 55 percent compared with March 2010. By contrast, SUV sales are reportedly down.
Yellen says Fed to stay course
At the Economic Club of New York on Monday, Janet L. Yellen, vice chair of the Board of Governors of the Federal Reserve, asserted that QE2 wasn’t driving up the price of commodities (such as oil). “Some observers have attributed the recent boom in commodity prices to the highly accommodative stance of U.S. monetary policy, including the marked expansion of the Federal Reserve’s balance sheet and the maintenance of the target federal funds rate at exceptionally low levels,” she said.
Yellen then added, in polite central banker-ese, that these unnamed observers were nattering nabobs of negativism. “Recent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by Federal Reserve policy,” she said. “Moreover, empirical analysis suggests that these developments, at least thus far, are unlikely to have persistent effects on consumer inflation or to derail the recovery.”
Thus the Fed is unlikely to do anything in the near future like raising interest rates or rolling back what’s left of QE2. “The increases seen thus far in commodity prices and headline consumer inflation are not likely, in my view, to become embedded in the wage- and price-setting process and therefore are not likely to warrant any substantial shift in the stance of monetary policy,” Yellen said.
Oil prices hit China too
American consumers are hardly the only ones feeling the pinch of the high price of oil. During the first quarter of 2011, China actually registered a trade deficit, its first quarterly trade deficit since 1Q04. Though the country is still expected to have a trade surplus for all of 2011, economists are predicting that it will represent a smaller surplus than in 2010, which was down from 2009.
The culprit? Chinese consumers are buying more, but not enough to dent the country’s behemoth surpluses. Labor costs and other kinds of inflation are also making exports more expensive, but that isn’t the whole story either. Rather, the international price of oil and other commodities has been enough to push up the cost of imports for the country.
Wall Street was up, then down, then almost even on Monday. The Dow Jones Industrial Average gained a microscopic 1.06 points, or 0.01 percent, while the S&P 500 lost a rather small 0.28 percent and the Nasdaq was down 0.32 percent.