Gasoline Prices and The Savings Rate

In the past few weeks, we’ve coined the term ‘a happy accident’ to explain why gas prices have declined so much, while retail sales have been flat, and the savings rate has appreciated.  As it turns out, the opposite is true when gas prices see a large jump upwards.  In March, gasoline prices appreciated by nearly 11%, and we saw the savings rate decline by 8%.
It only goes to show that Americans are not very conscious of the decisions we make with regards to Gasoline.  Gasoline is an inelastic good, meaning even when the price changes, we buy the same amount…until prices remain low for 3 or 4 months! 🙂

Gasoline Graph