Plunging Oil Prices Puts Money In The Pockets Of Those Who Need It Most

The era of $US100/barrel oil is over, and that’s great for most Americans.

Last week, RBC Capital Markets put out a note estimating that the average American household will save around $US42 per month on gas over the next year if prices stay as low as they currently are.

This is particularly good for low-income Americans. It’s basically a tax cut, says Deutsche Bank’s chief US economist Joe LaVorgna.

“If the price is falling, it’s a tax cut in that you don’t have to pay for other things,” LaVorgna said. “If you are on a fixed income or a student or a lower wage worker, that’s money in your pocket.”

If you are living paycheck-to-paycheck with very little savings, this is a much bigger deal than if you had a little bit of cushion you could dip into when gas prices went up a few years ago.

And this isn’t just about gas prices, says LaVorgna. It also will affect heating and cooling prices. “It won’t just be gas, energy prices are so highly correlated that people are going to get some benefit this winter.”

Where will that extra money go? “If I had a guess i would think restaurants and retailers would probably benefit the most,” LaVorgna said.

The people receiving this energy price relief are more likely to spend than save. This is great news for an economy that’s largely driven by personal consumption.

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