Thursday, May 21, 2009

Gasoline Pattern Returns: Demand Falls, Prices Go Up

Americans cut back driving in spring and summer of 2008., as gasoline soared to over $4 a gallon. One might expect cheaper gas to get people moving in 2009. It didn't. DOT statistics show:

December miles driven went down 3.8 billion miles, 1.6% from a year earlier.
January miles driven fell 7 billion miles or 3.1%
February dropped 1.9 billion miles or almost 1%
March fell 3.1 billion miles or 1.2%

What about gas prices during the same period?

December prices fell 20 cents, an 11% decline
January prices rose 20 cents, a 12% increase
February prices remained stable, virtually unchanged
March prices rose 16 cents, am 8.5% increase

With 15 billion fewer miles driven, prices still rose. This is before gas went up 60 cents in a matter of weeks in West Texas. Southern California noticed the change.

Apparently gasoline has an inelastic demand curve, similar to health care. It's driven by factors other than price. Funny, last summer saw a weak dollar and money fleeing to safe haven commodities. Deja vu?

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