Putting Gas Price & Inflation in Perspective
Recent Gas Price Spike Highest in Percentage Terms
Gas prices hit $4.11 on 7/7/08 during the “Great Recession”. However, the full-year 2008 average gas price increased only +16% y/y as the spike was not long lasting. During full-year 2021, the average gas price increased an astounding +39% y/y after declining for the previous 2 years during covid. On top of this, gas prices increased another +28% to $4.20 for the YTD period ending 3/7/22.
An interesting point is that gas expenditures only comprise an average 2.5% of consumers total per capita spending before taxes. So it seems that the average consumer has some cushion to absorb even these massive price increases. Further, consumers could also handle this price shock by driving less. In any case, it is notable that higher gas prices also translate into higher supply chain transportation costs, feeding the inflation loop and ultimately driving menu prices higher.
Comps Surprising Correlation to Gas Prices
There is a lot of thought that higher gas prices means less money for consumer expenditures on eating-out. However, a historic analysis of the correlation of comp performance relative to various macro economic metrics (including gas prices) from 2011 – 2020 reveals a different story. As we can see from the chart below, the most important correlations to QSR comps are GDP on the upside and grocery food sales on the downside (the more people eat-in the less they dine-out). The surprising point is that comps are positively correlated to gas prices which suggests that a gas prices increase usually means that GDP is also growing, thus supporting QSR sales. That is not currently the case as gas prices are currently rising because of supply constraints.
FSR correlations are even more sensitive to unemployment, CPI (price increases), disposable income and grocery sales which reveals the discretionary nature of sit-down sales during an economic downturn.
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