With gas at $3.50 a gallon in April, the U.S. mainstream media is replete with stories of drivers abandoning SUVs, hopping on mass transit, and otherwise cutting back on gasoline. Yet a year or two ago, when pump prices were approaching and even passing the $3.00 "barrier," the media mantra was that demand for gasoline was so inelastic that high prices were barely making a dent in usage.
Which story is correct? I lean toward the more "elastic" view, and here I'd like to share some of the data that inform my belief.
I've been tracking official monthly data on U.S. gasoline consumption for the past five years and compiling the numbers in this spreadsheet. You'll find that it parses the data in several different ways: year-on-year monthly comparisons (e.g., March 2008 vs. March 2007), three-month moving averages that smooth out most of the random variations in reporting, and full-year comparisons that allow a bird's-eye view.
Here's what I see in the data: