What Matters for Consumer Sentiment? World Oil Price or Retail Gasoline Price?

Abstract

We investigate the link between oil prices, retail gasoline prices and consumer sentiment in the Euro Area. Our results corroborate existing evidence that both oil and gasoline price shocks have a negative impact on consumer sentiment in the US. Importantly, we find that they operate through different channels. Oil price shocks mostly impact consumers overall economic outlook, while gasoline price shocks impact consumers perceptions of their own financial position. The evidence suggests that consumers perceive the world oil price as a forward-looking macroeconomic indicator, while retail gasoline price affects their current financial position.

Keywords: oil supply and demand shocks; gasoline prices; consumer sentiment; euro area

JEL Classification: G10; G11; G12; G14