With the price of gas moving toward $4 per gallon, you might think that consumers would be easing off the accelerator and making fewer trips to the pumps.
There is no evidence of that as yet, however, after reviewing data on revenue collection from the state's gasoline excise tax, which is 21-cents per gallon (not including the 2.5-cents charged to help clean up underground storage tanks).
For the first eight months of FY11, gasoline excise tax revenue is at $396 million, up from $389 million for the same period a year ago. The price of gasoline has gone up steadily through much of this period, and so has consumption as measured by gasoline tax revenue collection.
Here are the numbers for the past eight fiscal years:
FY10, $577.5 million.
FY09, $579.3 million
FY08, $596.3 million
FY07, $595.8 million
FY06, $590.5 million
FY03, $594.9 million
To put those numbers into the perspective of gas prices, here is a chart (source U.S. Energy Administration) that reviews monthly gasoline tax collections and the price of Massachusetts retail gasoline prices going back to the early 2000s, when the price of a gallon averaged slightly above $1.50 per gallon.
The chart shows that while there is some variation in month-to-month consumption (as measured in gasoline tax revenue collections), there is also been a remarkable level of stability in consumption long-term, with most months hovering around a collection of $50 million or so.
So are there relationships between gas prices and gas consumption, as measured in revenue collection?
The answer is not straightforward and the chart does not help much either, but there may be a different storyline here.
In general, gasoline consumption in Massachusetts has gone down since 2004 and 2005, on a fiscal year basis. Since that time, a series of price spikes has increased the price of gasoline to previously unheard highs of $3.09 per gallon in September 2005, $3.07 per gallon in July 2006, and $3.05 per gallon in May 2007, peaking in July 2008 with a price of $4.08 per gallon.
The period after 2007 also coincided with a severe recession during which gasoline consumption and gasoline tax collections showed a bit of a decline in FY09 and FY10. However, perhaps reflecting an uptick in the economy, consumption has picked up in the current fiscal year, even as the price of gasoline has marched upward.
Economists note that consumers react to price hikes not with quick action but with measured, more long-term responses, especially if price spikes become permanent price hikes. Drivers may choose to purchase more fuel efficient vehicles, change to public transportation, or move closer to their workplace. There are other factors, such as household disposable income.
So the link between gas prices and consumption, as measured by gasoline tax collection, is not at all direct, at least not in the short term. How consumers would cope with gasoline priced permanently at $4 or more per gallon, is an open question at this point.
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