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Why rising gas prices matter at the pump

Eve Troeh Mar 1, 2011
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Why rising gas prices matter at the pump

Eve Troeh Mar 1, 2011
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TEXT OF STORY

Bob Moon: The rising cost of crude keeps pushing prices at the pump higher, mostly due to the ongoing unrest in the oil-producing nation of Libya. In some U.S. cities, a gallon of gas has already hit $4.

And as Marketplace’s Eve Troeh reports, that’s widely considered a tipping point for consumers.


Eve Troeh: People take round numbers more seriously. Think of the four-minute mile. Or your 40th birthday. Economist Greg Daco says gas prices are the same. When fuel hits $4 a gallon:

Greg Daco: Consumer confidence drops more than it would just according to rising gasoline prices.

And nervous consumers will spend less on other goods and services.

Daco: So there’s a bit of a substitution effect that goes on there.

If those high prices stick around, gas sales go down, as people reconsider how much they drive. Or even what they drive.

Sam Jaffe is with IDC Energy. He says $4 gas changed the car market in summer 2008.

Sam Jaffe: Prius sales went out the roof. That psychological barrier has a huge impact on the car-buying decision.

This time around, more companies have hybrid and electric cars ready. But remember: In summer 2008, more people had jobs. It could take prices closer to the Big 5 — dollars a gallon — to spur sales today.

In Los Angeles, I’m Eve Troeh for Marketplace.

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