​A 5.6¢ Drop in Gasoline Adds Up To Billions in Savings

Chip Corley  |

Via Paul Brennan, 401(K) 2012 & Max Pixel

Year to date stock prices are up 6%. Home prices have been growing at greater than a 5% annual rate. According to S&P Dow Jones Indices, global stock prices have risen $2.4 trillion thus far in 2017. National home prices have regained all of their lost ground since the great recession. In the past 12 months, the value of all housing increased by $1.6 trillion, with an aggregate value of $29.6 trillion. Most notably, homeowners’ equity has soared since the 2010 lows, and now stands at $13 trillion. This indicates that homeowners, not the banks and lenders, enjoy 44% of the wealth in the housing market. As per the census bureau, home equity comprises 32.2% of individuals’ total net worth.

With asset prices at all-time highs, the wealth effect of more spending and investment is poised to occur. When does the music stop and things take a turn for what’s next? A key element that pundits and economists like to watch is inflation (CPI). Typically, at this stage of an economic expansion, inflation is perking up; this expansion has been different. Core consumer prices are sputtering along at a 2.2% rate, until now. Gasoline prices have been on the decline; regular gasoline has decreased by 5.6¢ per gallon this year. If gas prices remain low or fall even lower, not only will investors benefit from asset appreciation, they will have more money to spend from the savings on fuel. Estimates say that for each penny drop in gas prices at the pump, there is $1.4 billion in valued added to the economy. Gas prices have fallen 5.6¢, thus fueling $7.8 billion in added economic value. Everyone driving a motorized vehicle will find themselves with extra money left over after filling up.

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