Real Gasoline Prices Are (Relatively) Low; Gas Prices Are Rising Sharply

Key Takeaways

• Real gasoline price up 23% Feb‑Apr, highest growth since 2022
• Consumption expected to drop ~7% given elasticity of –0.30
• Gas station sales rose more than March 2022 spike, in real terms
• Unit marginal propensity to consume suggests non‑gas spending may fall similarly

Pulse Analysis

The inflation‑adjusted price of regular gasoline remains near historic lows, yet the recent month‑on‑month surge is unprecedented in the post‑pandemic era. From February to April 2024, real gasoline prices climbed roughly 23%, outpacing the sharp increase triggered by the 2022 Russian invasion of Ukraine. Deflated by the PCE price index, the price curve sits on a log‑scale plateau, indicating that while absolute levels are modest, the velocity of price change is accelerating and reshaping consumer cost dynamics.

This price acceleration translates directly into lower fuel consumption. Empirical estimates place the price elasticity of gasoline demand between –0.27 and –0.35, implying a 7% drop in gallons purchased for a 23% price rise. Retail data through April 2024 confirm the pattern: sales at gasoline stations surged more than the March 2022 jump, both in nominal dollars and real terms, while overall retail growth lagged. Moreover, research by Gelman et al. shows a near‑unit marginal propensity to consume out of gasoline‑related savings, suggesting that any reduction in fuel spending is likely to be offset by a comparable decline in non‑fuel expenditures.

Policymakers and market analysts should treat the current price swing as a leading indicator of broader consumption shifts. A sustained rise in real gasoline costs could compress household discretionary budgets, pressuring sectors such as dining, apparel, and travel. Energy‑intensive industries may also feel indirect demand drag as consumers reallocate limited cash. Forecasting models that previously assumed stable gasoline demand elasticity must now incorporate higher volatility, while investors might monitor gas‑station earnings and retail indices for early signs of a slowdown in overall consumer spending.