The precipitous drop in gas prices from last summer’s highs was supposed to lead to a surge in consumer spending. Instead, consumers saved more money in the first few months of 2015, with the personal saving rate climbing from 4.8 percent for 2014 overall to 5.8 percent in February. That has led some economists to question whether the today’s low gas prices have led to a long-term trend in personal savings.
A new report from UBS finds the higher savings rate may be “just a temporary spike” and increasingly upbeat consumers should start spending more before long.
Related: How Plunging Oil Prices Could Create Economic Upheaval
Economists Maury Harris, Drew Matus and their team write that consumers may have been saving more money because of uncertainty around whether the gas prices would remain low. “However, as low gasoline prices persist, households should feel more confident changing non-gasoline consumption expenditures,” they say.
Gas prices this week averaged $2.41 per gallon, according to AAA, about $1.15 less than this time last year. Pump prices vary widely by state, ranging from $3.19 in California to just $2.17 in Alabama.
Average prices have increased 37 cents since hitting a near six-year low in January. A spike in gas prices is common this time of year as refineries conduct seasonal maintenance, which limits production.
AAA economists predict that gas prices could fall back to close to $2 per gallon this summer and will remain less than $3 per gallon throughout 2015. The low prices this year have led to a savings of about $100 per household per month.
Why Gas Prices Are Set to Drop (Again)
In addition to putting more money in consumers’ pockets, those savings could trickle down to other sectors sensitive to consumer spending, like food and construction. A recent poll of leading economists found that 82 percent expect lower gas prices to benefit the economy, leading to a higher GDP.
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