The latest AAA data show the national average price for regular gasoline at the pump is now just four cents below the politically sensitive $4-a-gallon mark. This month's surge in retail fuel prices (gasoline and diesel) marks the largest increase on record and is delivering a nasty shock to the pocketbooks of cash-strapped consumers.
Bonnie Herzog, managing director and senior consumer analyst at Goldman Sachs, wrote in a note that when fuel prices spike to these "psychological threshold" levels, above $3 and approaching $4 a gallon, consumers tend to drive less and fill up their tanks less frequently.
"Historically, when retail gas prices increase (especially above the $3/gal psychological threshold, although that's been rebased higher), consumers make the concerted decision to drive less, don't always fill up their tanks (i.e., lower fill rates)," Herzog told clients on Friday.
But Herzog pointed back to history, noting that the real demand destruction for drivers comes when gasoline prices at the pump reach $ 5 a gallon.
She noted, "Further, we recognize that, in times of a significantly rising fuel-price environment, consumers may opt to trade down the fuel-price spectrum (i.e., from premium to regular)."
The vertical move in gasoline and diesel this month, according to AAA data, is record-setting. Gas prices at the pump have jumped nearly 33% on the month, far outpacing the Russia-Ukraine invasion in 2022 or the Iraq war, with data dating back to 2005. The shock here will certainly leave some cash-strapped drivers dialing back miles on the road.
Diesel spike! Small businesses are warning of shock (read here).
Herzog offered a warning that elevated "retail prices at the pump matter" because "low-income households spend 3x more of their incomes on gas vs. the average household, and broadly speaking, c-stores over-index to low-income consumers."
Let's not forget that pressure on pocketbooks from a fuel-pump shock may weigh on consumer sentiment if the spike proves not to be temporary. However, Trump headlines Monday morning may suggest the administration is finding an offramp to the conflict.
Professional subscribers can read much more from Herzog's team here at our new Marketdesk.ai portal