Rising Gas Prices Hurting Recovery
NATIONAL REPORT -- Just as it appears economic conditions and consumer confidence are improving after the Great Recession, rising gas prices in North America could take a toll on consumer spending power, shifting consumers back to staying at home and shopping for value, according to a new blog by two top Nielsen company analysts.
"With ongoing political unrest in the oil-rich Middle East region, gas prices are edging back up to 2008 levels when they topped over $4.00 a gallon in the U.S. and $1.40 per liter in Canada," according to Todd Hale, senior vice president, consumer and shopper insights, and Carman Allison, director, shopper and industry insights, The Nielsen Co. They pointed out that while there are some similarities between 2008 and 2011, the reason gas prices rose then was increased demand. This time, the main culprit is political instability abroad.
They pointed out that in 2008 increased demand drove gas prices up during the heavy travel summer months of July and August, topping out in the U.S. at $4.11 during the week of July 7. With summer still months away and with prices in the U.S. already nearing the $4.00 mark at some locations, it is possible that gas prices may surpass those levels. In Canada, these prices translate to about a 30 percent increase over the U.S. prices.
The pair also calculated the impact on the average household budget. In 2010, there were 2.1 cars per household in the U.S. Assuming that each car is driven 1,000 miles per month and achieves 20 miles per gallon of gas, a price increase of 10 cents per gallon translates to an increase of $10.50 per month in household expenditures. As prices increase, households could be paying an extra $52.50 with a 50-cent increase, $105 with a $1.00 rise and $210 if prices jump by $2.00. In Canada, similar assumptions can be made: a 10-cent increase per liter translates to a $30 additional monthly outlay; $65 with a 25-cent rise and $124 with a 50-cent increase, they wrote.
On top of the fuel costs, commodity prices are also increasing, which puts pressure on the pricing of other products by manufacturers and retailers. The net result, however, is that we should expect consumer reactions to mirror historic trends:
• Increased trip compression
• Less eating out
• More value-conscious shopping alternatives
• Increased use of coupons
"The impact to consumers is real and wallets will continue to be squeezed. Household wages are not keeping pace with inflation, so in the end, consumers will need to dig deeper into their pockets to pay for 'everyday' things," wrote Hale and Allison. "The coping mechanisms consumers applied during the recession will be their backup plan as we head into the summer."
For more information and graphs, click here.