Maybe gas prices do affect behaviour

Gas prices at 106Many things could explain the slower rise in American demand for gasoline in the last month, but the $3-a-gallon price has to be a factor. CNN reports that the Energy Information Administration says demand over the past four weeks was up 0.4 per cent over the same period a year ago; the average annual rise over the last 10 years or so has been 1.5 per cent.  CNN cites other sources showing varying data, but all pointing in the same direction.

Could be a fluke. Could be part of a general economic slowdown. Maybe bad weather kept people at home.

But it’s certainly one piece of circumstantial evidence for the idea that prices affect consumers’ behaviour, a rule to which gasoline has frequently seemed to be a bizarre exception. Surveys and other research have suggested that demand for gasoline isn’t that responsive to price, with a gallon having to cost something like $4 before consumers started to make major changes to their consumption.

Then again, maybe these adjustments just take time. Rearranging your travel patterns — whether it’s by carpooling, resolving to bike more, or maybe by doing something as significant as moving — takes time. You have to spend a lot of time contemplating prices and tank capacities in your head before deciding it’s worth changing your life, then think about what you’re actually going to do, then do it. That’s a long pipe.

One response to “Maybe gas prices do affect behaviour

  1. Great site – well done.

    One of the reasons that the rise in US fuel prices in particular hasn’t yet altered consumer behaviour is surely that those costs are rising from such a very low base.

    Compared to the capital cost of buying a vehicle, the price of gasoline remains (almost) incidental.

    And if someone has just spent $40k on buying a sleek new motor, they’re very likely to want to use it. So, and as you say, consumer behaviour has to change more profoundly – i.e. don’t buy the new car in the first place.

    Fuel prices are much higher here in Europe. In the UK, taxes have historically made up as much as 80% of the price of gasoline. The tax on cars is higher here, too.

    That means that we drive smaller cars and we use less petrol.

    But with a bizarre kind of logic, the high tax component unfortunately means that we are, perversely, much more insulated from rising gasoline prices than American motorists.

    Oil has tripled from $25 to $75 over the past four or five years – as have gasoline prices in the US, more or less.

    But because the high tax take has remained nearly the same in the UK through all that time, costs at the petrol pump here have risen by just less than 50% over the same period.

    Our fuel costs do remain much higher than in the US, but actually the proportionate rise in gasoline prices has not been anything like so severe.

    And even here, whatever people might say or think, petrol prices really are still incredibly low.

    As a geologist who has spent time offshore in the North Sea, witnessing all the technology, infrastructure and the huge investment of cash and monumental effort that goes to recover our oil, it never ceases to amaze me that, even in the UK and in 2007, a litre of petrol here still costs less than a simple litre of milk.

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