What Do High Gas Prices Mean for Food Purchases?

Since alternatives to driving are hard to come by in many parts of the country, it's no surprise that when gas prices doubled in California between 2001 and 2005, spending on gas by consumers also doubled, according to a new research by Dora Gicheva and Justine Hastings of Yale, Sofia Villas-Boas of UC Berkeley.

But since incomes didn't rise along with gas prices, how did consumers change their spending habits?

Again, the answers are not all that surprising. The researchers find that people ate out less and bought more food from grocery stores.

Taken together, our estimates imply that when gasoline prices increase by 100%, an average respondent in California who spends 3.7% of income on gasoline decreases overall food expenditures by 2.2% of income (a 4% decline in food away from home plus a 1.8% rise in grocery expenditures) to offset the necessary doubling of gasoline expenditures.

Using barcode data from an unnamed grocery store chain in California, the researchers also found that consumers bought more items that were on sale.

The results support Milton Friedman's Permanent Income Hypothesis, which states that people base their consumption decisions on how much they expect to earn over a lifetime and are not swayed by income changes that they view as temporary.

While the types of things people consumed did change as a result of higher gas prices, their overall level of consumption took only a minor hit as people shifted to cheaper goods.