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Why gas prices loom so large in the way we think about the economy

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Gas prices sign in Washington DC

The biggest increases in spending last month were on food and beverages, and, of course, at gas stations, according to Commerce Department Data. Chip Somodevilla/Getty Images

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Two economic data points that came out Thursday, the consumer sentiment index and the retail sales numbers, paint different pictures of this economy,

The consumer sentiment index, from the University of Michigan, is way up from last month, and quite a bit stronger than economists predicted. It suggests consumers are paying more attention to the strong labor market and rising wages than they are to inflation. 

Retail sales for March, from the Commerce Department, were up half a percent from the previous month.

The biggest increases in spending were on food and beverages and, of course, at gas stations — up almost 9% between February and last month. That sounds like the kind of inflation that would put a damper on consumers’ optimism. But Thursday’s retail numbers may make the situation at the pump sound worse than it really is.

“Gasoline prices are something as a society that we all have the right to complain about, just like traffic and the weather,” said Michael Noel, who teaches economics at Texas Tech University.

He was kind of joking there, but “there’s a real element to this,” Noel said. “People’s gasoline consumption depends on some factors that are hard to change. Like the kind of car they drive, how fuel efficient it is, how far away they live from the place that they work or the places that they go.”

People who earn less spend a larger percentage of their income on gasoline, so they’re affected the most by price spikes. But even those with ample means like to complain about it.

“You might even say the psychology is even worse than the actual economic impact,” Noel said.

That’s because gas prices are in our faces all the time, said Ted Rossman, a senior industry analyst at

“It’s one of these where we drive around town, we see the billboards, we can’t miss it. It’s a really obvious form of inflation,” Rossman said.

The most recent price spike happened when Russia invaded Ukraine and Brent crude futures almost hit $140 a barrel. Akshay Rao at the University of Minnesota said the price of gas went up very quickly. 

“When there is a supply shock, then the rational gas station will consider the higher price that they will have to pay to replenish their existing stock. And if they don’t raise the price of gasoline, then they will be out of cash when they go to repurchase gasoline,” Rao said.

But oil prices are down about 20% since then, so why isn’t gas much cheaper? 

“The reason is because now they’re valuing their inventory at the price that they paid for it,” according to Rao.

That said, gas prices have come down about 6% since last month, AAA reported.

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