Inflation Update - As Applied to Gasoline

Here's an update to the price of gasoline, posted several times on this and another blog. 


I'll repeat some of that post here, with an updated chart. 


Last year, there was a lot of talk about "deflation" and this caused some to think prices were dropping. Some did, but many prices did not, and gasoline is one that has trended upwards and reached a peak in 2008, and then plummeted before recovering in 2007. Prices today are about where they were in spring of 2007. 


My chart has some short term 'ups and downs' which are small vertical lines. These are attributable to business road trips, during which I purchased gasoline at lower prices in other states. All of those purchases are included here.  

This is based upon the gasoline receipts for one of my automobiles. As I have stated previously, I collect data on certain things. In finances, that includes my household's "consumption and spending habits". I use several tools; this chart was created using data entered in a spreadsheet. I update it monthly using my gasoline receipts. Why do this? If you don't, won't or can't measure something then you certainly can't control it. Or, as we used to say in the early days of mini-computing "garbage in = garbage out". Some truisms are universal, but we are at a point in our development as a culture where we have forgotten how we got to where we currently are. Too bad for us and our future generations.

There are two lines on the graph. The red line is the actual price of gasoline from the period February 3, 2005 through January 20, 2011. The black line is a trend line, which displays the actual trend in prices and as you can see, is trending continuously upwards. I also calculated the average of prices on an annual basis and compared those averages to determine the price increase per year. These annual price increases were then compared to determine the percent price per year.

Average cost per gallon annually was:
2005 = $2.50
2006 = $2.74
2007 = $3.04
2008 = $3.24
2009 = $2.82
2010 = $2.98
The interesting thing here is that the price of gasoline has been increasing at a rate of about 2.2% per year, which is in line with the very low inflation we had been experiencing. However, gasoline prices today are about 11% higher than they were at this same time, last year. Does that signal an increase in inflation? We know that the floods and weather issues around the globe will depress crop yields. That should result in price increases at the grocer.


Average inflation is usually in the range of 3.0 to 4.0% per year.  The averages, however can be deceiving. Do you remember the angst in 2007 and 2008 when gasoline prices "spiked"? Peak price I paid per gallon was $4.419. Even so, the average increase in gasoline prices per year, 2005 to the present, are low, less than 3% annually! What this means to the consumer it that when economists speak of "averages" it is useful to be aware that these averages can include severe periods of higher or lower numbers. So while the average is benign, the spikes are painful. Moral: "Be Prepared". Today's low prices may be replaced with higher prices in the future and may include price spikes. So don't spend those savings acquired by low prices. Save them for the day when prices return to the normal rate of inflation, which is possibly as near to today as those July 2008 price spikes. If they are, then we could again face more steeply rising prices in the summer. As the "experts" say, economics forecasting is not an exact science. 



The government also adjusts the methods for calculating inflation. Today's low 1.5% inflation, if calculated the way the government did it in 1990, would be reported as 4.5% inflation. If we used the methods available in 1980, then inflation would be reported as 7.5%. So at times, the "official" government inflation figures can be deceiving. I won't comment if this is deliberate or not. That's a matter of opinion.

References, Errors, Omissions, Comments:

1) Inflation was running about 2.0% per the government CPI-U. However, it has dropped recently and is now reported at 1.5%. We'll see what the January numbers show. You'll note that gasoline has trended upward since fall. The vertical red lines in the fall and again in December 2010 were due to lower prices during business trips. Gasoline in our area did not decrease in price. 

2) Click this link for other posts on the "inflation" topic:

http://briarcliffelakes.blogspot.com/search/label/Inflation