Gas prices have risen nationwide by roughly $1.00 per gallon over the previous 12 months. In Rochester, we pay about $3.90 per gallon right now. What does this mean for a typical family? I’d argue that my family is pretty typical. I commute about 22 miles per day to work in our fuel efficient Mazda 3, while my wife has a used Ford Expedition to shuffle the kids around, and which we use for our camping and other excursions in the summers. The Mazda gets about 30 mpg on average and gets driven about 14,000 miles per year. The Expedition averages about 14 mpg and is driven about 11,000 miles per year. How much gas do we consume? About 470 gallons for the Mazda and 785 gallons for the Ford, or a total of 1,255 gallons of gas per year. Our driving behavior has, and is unlikely to, change when gas prices swing by even as much as two dollars, we end up making cuts elsewhere. So, since gas prices have risen by $1.00, our annual disposable income to spend on other things has fallen by $1,255. That’s quite a big chunk.
Two simple points:
- While this increase in gas prices is a 33% increase, and while $1,255 in higher expenditures really does hurt, this still represents less than a 3% hit to our family’s disposable income. We can certainly handle that in any one year, or perhaps two. Only if this continued for several years would we really become squeezed by this.
- But we certainly will be spending about $1,255 less on other goods. Maybe a little less driving, so perhaps we’ll get our gasoline consumption down a bit. What will those dollars not be spent on? Well, you look at the things that you had, at the margin, the least pleasure from consuming in the past. For us, these tend to be housing related investments that are largely cosmetic or convenient. So, we won’t be cutting down that tree in our yard that needs it. We won’t be repaving our bumpy driveway, so dribbling a basketball will have to remain a challenge. We will probably keep wearing our winter jackets and winter boots for one more year, and may delay the purchase of some bookshelves for some time hence.
Sure, some of those changes are annoying, but they are not going to end our lives. Do we wish gas prices were cheaper? Of course, especially since our enjoyment comes from activities that entail lots of driving. But we’ll get by, and I suspect many others will too.
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