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A speech Friday by Esther George, president of the Federal Reserve Bank of Kansas City, offers an interesting high-level look at the economic influence of gasoline prices and why it may never be the same.
The big picture: Gasoline prices account for a smaller share of household spending than they once did — about 4% in the 1980s to roughly 2% last year, though it's much higher for low-income families.
The intrigue: The pandemic is changing the picture even more. Per George, "The COVID-19 shock could further loosen the grip of gasoline prices on consumers’ budgets and reduce the already lowered sensitivity of consumption to changes in the price at the pump."
How it works: Gasoline demand plummeted when commuting went way down due to working from home and job losses, and while there's been some revival, it's still below pre-pandemic levels.
What's next: "One thing that seems unlikely to ever bounce back fully is the amount of commuting," she said.
- "With many workplaces offering, or likely to offer, increased workplace flexibility, not only is gasoline demand likely to be lower, but it is also likely to be more elastic."