Posts tagged “inflation”
Different Situation, But Prices Are Not Unprecedented
In a previous column, I pointed out that — perhaps surprisingly — the price we’ve been paying for gas lately, compared to 90 years ago, is not as high as people would think — that is, once the rate of inflation is factored in to the equation. For instance, while motorists may have been paying only $0.25/gallon in 1919, when converting that number to February 2012 dollars, the cost was $3.35/gallon — a mere 6.5 percent cheaper than 2011′s annual average of $3.57/gallon. The chart below shows the price movement (based on February 2012 dollars) from 1919-2011.
Inflation Adjusted Data
Gas prices are spiraling through the roof like never seen before. People often point to specific years that gas was so cheap, in an effort to blame politicians, Big Oil, or whomever else is the flavor of the day. Indeed, a gallon of gas was going for only a quarter of a dollar in the years after World War I, and even less than that before and after World War II.
But the key fact that’s missing from all the ranting and raving is the rate of inflation. The simple definition of inflation according to Wikipedia is: “A rise in the general level of prices of goods and services in an economy over a period of time.” Keep in mind, that at the end of World War I, average annual income was only $1,500. Currently, annual income is around $50,000.
For this exercise I plotted various sets of data in graphs — sometimes combined — based on information compiled by the U.S. Department of Energy’s (DOE) statistical office, the Energy Information Administration (EIA). The purpose of this two-part segment is to provide a clearer understanding of how much the price of gas has actually gone up relative to a family’s budget and other household costs, and most importantly, during what time frame.
There is a very informative story in the Dallas Morning News today covering what I recently discussed in The Ripple Effect: Shoppers pay as oil costs trickle down Ripple effect, trickle down effect – it all amounts to the same idea: There are few aspects of modern life that aren’t dependent upon oil. From the article: “So far we haven’t seen much percolation of energy prices through to retail. That’s so far,” said Stephen Brown, director of energy economics for the Dallas Federal Reserve Bank. But some increases are inevitable. And they’ll show up in products that most people don’t associate with black gunk from the ground. For Kevin Brown, an economist with the American Chemistry Council, the iconic product… Continue»
As I have been arguing for years, this is not going to have a happy ending. Some day we will look back on this ethanol mandate fiasco as one of the greatest mistakes ever in American energy policy: Riots, instability spread as food prices skyrocket (CNN) — Riots from Haiti to Bangladesh to Egypt over the soaring costs of basic foods have brought the issue to a boiling point and catapulted it to the forefront of the world’s attention, the head of an agency focused on global development said Monday. “This is the world’s big story,” said Jeffrey Sachs, director of Columbia University’s Earth Institute. “The finance ministers were in shock, almost in panic this weekend,” he said on CNN’s… Continue»