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Do Higher Gas Prices Mean Lower Consumer Spending?

Do Higher Gas Prices Mean Lower Consumer Spending?The short answer is “extremely unlikely”.  The reason is that a small increase in some costs (like gas) only creates a marginal shift towards other costs (not a decrease in those costs).

One of the most important commodities in a first world economy such as ours is gas and other energy sources.  If there is a rapid rise in energy costs, it could lead to a significant increase in overall prices – this is known as inflation.

The question now becomes: Is the rise in gasoline prices strong enough to create an inflationary trend that will stall growth in consumer spending?

While millions of households feel the pinch of decreasing discretionary income due to higher gas prices, the fact of the matter is that this will only be a hiccup in the U.S. economy.  Overall spending and consumption will continue at a similar pace.

At the end of the day, if we walk away with long term gains in energy efficiency then the next generation of households will benefit from their own increase in discretionary income.

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