Everyone who drives a car or rides in one knows the price of gasoline on a daily basis. The sharp drop in this price during July fueled the rally in the stock and bond markets as investors concluded that it would help to moderate July's CPI and PPI, which it did as expected over the past two days. We will be watching this price along with everyone else during August (chart below).
The drop in the national retail price can be attributed to consumers reducing their usage of gasoline as the summer driving season started during the first week of July, when the price peaked around $5.00 per gallon (chart below). During the August 5 week, the four-week average of usage was down 5.3% from a year ago. The four-week average price fell back down to $4.37 during the August 8 week.
Soaring gasoline prices depressed the consumer sentiment index. Now falling prices are boosting the index. The University of Michigan's preliminary August reading on the overall index came in at 55.1, up from 51.5 in the prior month. It had hit a record low of 50.0 in June.