Consumers Start to Feel Pinch of Higher Oil Prices

When oil hit $100, we all thought the mighty consumer would break. When it hit $110, we said the same thing. But with oil pinging $120, it really does feel different this time around.


It does seem different this time, and it’s not just how it feels. The data show that this spike in oil and gasoline prices is going to hurt consumers more than it has so far.

The worst the consumer faced in previous oil and gas hikes was a weak housing market. Now, as oil hits a new all-time record of $120 a barrel, the consumer is being hit by several other factors that make this run-up far more painful.

Looking just at income, it’s rising at its slowest pace in two years and growth has been steadily falling. So there just aren’t the income gains this time around to cushion the blow of surging gasoline prices.

The trouble for consumers is they simply cannot change their demand for gasoline as quickly as prices rise. The four-week moving average is down 1.5 percent compared with a year ago, while gas prices are up 20 percent.

It’s a fast-moving bus, you can’t avoid. It takes time to buy a more fuel-efficient car, or move closer to where you work.

The good news is that these things do change over time. Since the price surges of the 1970s’, energy per unit of GDP has plunged, energy per person has remained about constant, even while overall energy use has surged.

So the signal from higher prices can have a powerful effect over decades on energy use.

But in the early days of transition, the pain can be real. A weaker economy and rising unemployment together with the housing downturn mean that this hike in gas prices is going to be different this time.