Friday, March 18, 2011

“Just the facts, ma'am” Friday: Gasoline Prices

In the first of a regular feature named in honor of that paragon of directness, Joe Friday, I’m slashing through the headlines about “higher gasoline prices.”

Gasoline prices have risen to an average of $3.54 (AAA) from $2.79 a year ago. Seems like a big increase, and it is from year-to-year, but how does it compare over time? When adjusted for inflation (necessary for proper comparison) as shown in these two excellent charts, you’ll see that gasoline prices are now at the upper end of the spectrum, but still not as high as they were in the early-1980s.

Another way of looking at it is how our gasoline prices compare to other countries. In this area, the U.S. is doing pretty well (if by “pretty well,” you mean having cheaper gasoline). Of 122 countries and territories included in Wikipedia (which can be of questionable accuracy but, in this case, does seem to have assembled the proper data in the proper way), we rank 92nd in terms of the expense of our gasoline – even after the recent price rise (which has been felt almost universally).

So fuel prices are not particularly high historically, although near the top of the range. A quick glance at the two charts linked above illustrates something that is new: increased volatility. From 1986 to 2005, prices were fairly stable. Since then, there has been significant fluctuation. This excellent piece from CBS MoneyWatch captures the issues, doing a nice job of summarizing a complicated topic. In short, some of the volatility is due to increased speculation, some of it is because oil has become a safe haven commodity, a hedge against inflation and weakness in the U.S. dollar, and most important because demand has gone through the roof with China and India become major producers and consumers of automobiles. We’ve now got 1 billion vehicles on the road worldwide (Plunkett Research), more than double what we had in 1985 (The Economist).

Any increase in gasoline prices will cause angst because we’ve created a society that’s almost completely dependent on the automobile. Unless you live in one of the few urban areas with decent public transportation, you really don’t have an option but to drive, so it’s always going to draw big headlines and big pressure to do something about it. There is, of course, a simple solution: get a car with better gas mileage, carpool, and/or drive less. 

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