Here's the best explanation for why households aren't spending their gas savings
Households are not spending the tax break that's come in the form of gas savings.
In a note Tuesday, Deutsche Bank's Joseph LaVorgna ponders three reasons why.
It could be that retail sales data, which have been weak in the past few months, will be revised higher, since they're usually quite volatile.
Or, consumers are consciously saving the cash to spend it later; that's what President Barack Obama advised back in January.
However, the most plausible reason is that households just don't think gas prices will stay low for much longer.
Here's LaVorgna:
"We can see this by looking at short-term inflation expectations, which tend to be heavily influenced by the change in gasoline prices. This is not the case for long-term inflation expectations, which are more stable and typically do not respond to large changes in goods or services prices."
And so by looking at the relative lack of change in the 12-month outlook for inflation, the point LaVorgna is making is that though the price of gas declined, consumers didn't adjust their outlooks.
This, in part, might explain why consumers saved, rather than spent, their gas savings.
The chart below shows how retail gas prices plunged, while one-year forward inflation expectations were little changed.
