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Consumers Already Cut Spending Because of Rising Gas Prices

One-in-three U.S. consumers (33%) has already significantly reduced discretionary spending because of the increase of rising gas prices, according to the monthly Consumer Outlook Index from RBC Capital Markets.

With the national average fuel price at approximately $3.20 per gallon at the time the survey was conducted (Feb. 25-28) another 18% say they would reduce spending if gas prices climb to $3.75 per gallon. Forty-one percent place their pain threshold at $4 per gallon or more.

“There has been quite a lot of debate about the impact of rising gasoline prices on consumption in general,” said RBC Capital Markets chief U.S. economist Tom Porcelli. “Specifically, the conversation focuses on what particular price level of gasoline would lead to a shift away from discretionary spending. The RBC survey finds that this level has already been breached for 33% of consumers and is within range for another 18%. Somewhat encouragingly, however, is that 40% of Americans place their threshold at or north of $4 per gallon.”

Consumer confidence for March sank for a third straight month, with the RBC Consumer Outlook Index sliding to 42.5, down 2 points from February’s 44.5. The March decline followed smaller decreases the two preceding months, as consumers were further affected by climbing fuel and food prices, instability in the Middle East and budget battles in Washington, D.C.

“What really stands out to us is worry about the future,” said Porcelli. “The geopolitical issues of recent weeks are seeping into expectations about markets and respondents’ financial position. The number of people who expect the value of their investments to ‘get worse’ rose to the highest level in four months. The erosion in personal finances has translated into people thinking they will have less to spend on discretionary items, and that number rose to the highest level in at least a year.”

The survey found growing concern about inflation, with consumers expecting that higher raw material costs will drive even greater price increases in the sectors already giving them the most trouble. Roughly nine-in-10 consumers (93%) expect to see higher oil and gasoline prices, and 90% expect to see higher food and grocery costs. Consumers had lower inflation expectations for durable goods, with 66% expecting higher prices for clothing, 56% for automobiles and 52% for appliances.

From Tire Review, an Engine Builder sister publication