Gasoline and gas-powered vehicles are complementary goods: They’re expected to be bought together. When all else is held constant, a change in the price of gasoline should have a predictable impact on the demand for cars and trucks—which, by extension, would change their price.
For example, when gasoline prices fall, it’s relatively cheaper to drive gas-powered vehicles. So, we’d expect their demand and price to rise. Today’s post looks into recent consumer price index data to see if that is in fact the story behind the numbers.
The FRED graph above shows the year-over-year percent growth rate in the monthly price of gasoline (blue bars), used cars and trucks (red bars), and new vehicles (green bars). We limited the time range to the past 54 months to observe how the COVID-19 pandemic impacted the relationship among these three sets of prices.
Here’s what we found:
- During most of 2020, the price of gasoline fell and the price of used cars rose. This is what would be expected.
- However, throughout most of 2021 and 2022, both gasoline prices and vehicle prices rose at a fast pace. Several factors can explain that. First, consumers traveled more frequently by road and bought relatively cheaper used cars. Second, car buying was boosted by federal consumer stimulus. Third, the Russian invasion of Ukraine reduced the global supply of oil and drove up gasoline prices.
- Between 2023 and the time of this writing, gasoline prices and used car prices both fell, while the price of new vehicles rose modestly. Why? New supply channels for fossil fuels lowered the price of gasoline, there was less consumer spending on goods considered non-essential, and higher interest rates on loans used to finance the purchase of new vehicles contributed to the change in vehicle prices.
So, although gasoline and gas-powered vehicles are complements, changes in their prices do not always follow a strictly inverse relationship. Other factors impacting the demand and supply of gasoline and vehicles can play bigger roles in the stories told by their numbers alone.
How this graph was created: Search FRED for and select “Consumer Price Index for All Urban Consumers: Gasoline (All Types) in U.S. City Average.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Consumer Price Index for All Urban Consumers: New Vehicles in U.S. City Average” and “Consumer Price Index for All Urban Consumers: Used Cars and Trucks in U.S. City Average.” Next, use the “Edit Lines” tab to customize the data by selecting “Percent Change from Year Ago” and copy to all. Lastly, use the “Format” tab to change the graph type to “Bar.”
Suggested by Maxwell Bassin and Diego Mendez-Carbajo.
