ST. LOUIS – The U.S. Energy Information Administration reported last year that American consumers spent, on average, just under 4 percent of their pretax income on gasoline in 2012—nearly $3,000 per household. In the previous 30 years, this percentage was this high only once—in 2008.
Given the impact of gasoline prices on the average American's budget, it is important to understand how these prices are affected by fluctuations in oil prices.
An article in the latest issue of The Regional Economist, a publication of the Federal Reserve Bank of St. Louis, explores why consumers in one part of the country may experience gasoline price increases or drops significantly faster than consumers in other parts of the country. It’s the “rockets and feathers” phenomenon, in which gasoline and oil prices do not always move in sync. This so-called asymmetric pass-through, mostly caused by seller market power and supply chain shocks, means that the speed of increases or decreases in gasoline prices differs depending on whether gasoline prices are high or low compared to oil. And because gasoline prices vary so much by location, so does the rate of their price changes.
“What does the presence of the asymmetry mean for consumers and policymakers?” asked authors Michael T. Owyang and E. Katarina Vermann. “Awareness of the apparent asymmetry can help consumers better forecast (and budget for) gasoline expenditures. Further study is needed to understand the origin of the asymmetry and its consequences for the overall welfare of the economy.”
Other articles in the latest issue of The Regional Economist cover topics such as:
Find this and previous issues of the publication at www.stlouisfed.org/publications/re/.