Fueling the mind: How local gasoline prices shape household consumption

We study how localized gasoline price shocks affect household consumption by linking high-frequency bank transaction data with station-level fuel prices. A 1% increase in local gasoline prices reduces monthly household spending by approximately 0.13%, even after controlling for national fuel price movements. We identify two mechanisms. First, spending declines are larger among fuel-dependent, low-liquidity households, consistent with a budget-constraint channel. Second, highly visible local price spikes reduce spending even among non-car households, consistent with a price-salience channel. We further show that localized gasoline price shocks amplify consumption inequality: low-income households with high fuel exposure experience the largest reductions, particularly in discretionary spending. Our findings show that localized energy price fluctuations shape household consumption through both financial constraints and behavioral responses to salient price signals.