Click to enlarge.
This chart has a lot to say.
It is absolutely amazing that the long-term gasoline trend matches the CPI so well. Other than sheer coincidence, there's no reason that an inflation index made up of a basket of goods and services should be equivalent to the price of unleaded gasoline in cents per gallon. For example, had I priced gasoline in dollars the two would be off by a factor of 100.
I therefore offer a long-term alternative to the CPI-U (Consumer Price Index - Urban). I'm calling it the CPG-U (Cents Per Gallon - Unleaded). As seen in the chart, the CPG-U is nearly useless at showing short-term movements in the price of goods and services. It does an excellent job of showing long-term movements though. I've added a CPG-U label to my blog and will continue to track it as new information appears.
Is there a valid conspiracy theory concerning the CPI-U? My answer would be a resounding no. Just look at the chart. The long-term trend in gasoline prices is almost identical to the long-term trend in overall prices that our government has been reporting.
Where were the CPI conspiracy theorists from 1988 to 1998? Assuming that they aren't hypocrites (big assumption), they should have been screaming bloody murder that the government was being ripped off.
So what does this chart tell us about our current situation?
1. If the price of gasoline stays high (or worse continues to climb) then we should worry about stagflation over the long-term. Peak oil is a concern here.
2. The price of gasoline is extremely volatile. It therefore has the potential to crash (again). We should therefore worry about deflation too.
What's new? Let the inflation vs. deflation debate continue. Thankfully, nothing seems to kill it. I fear the day when we all know for sure which one it is.
Based on the chart, nothing has changed for me. I continue to brace for deflation in the short-term and stagflation in the long-term. I do not make investment decisions based on the short-term though. That's why I am fine owning TIPS (inflation protected treasuries) for the long-term.
I'm not predicting stagflation. I'm simply bracing for it (by owning TIPS). There's a difference here. If I was sure stagflation was coming then I'd be hoarding hard assets with my entire nest egg.
History shows that hoarding gasoline when it was well above its inflation adjusted average would not have been the best of plans. Think 1981, 2008, and perhaps right now. Who really knows for sure? My emotions tell me to hoard gasoline. My brain isn't at all sure. It points out that natural gas prices are the same as they were 10 years ago. There's a conflict here and in my opinion it could go either way.
Source Data:
EIA: Petroleum
St. Louis Fed: CPI-U
I have a conspiracy theory for you.
ReplyDeleteThe purity of the gasoline isn't being accounted for in your numbers. There was almost no ethanol in most gasoline in 1976 and today there is almost no gasoline WITHOUT ethanol. You have to make a hedonistic adjustment somewhere.
/snark
Maybe cents per mpg is a better gauge. Calculated Risk often shows a total miles driven chart, and you should be able to find the total gallons of gasoline consumed. My demand for gasoline has dropped considerably since 1978. In 1978 I demanded one gallon of gas for every 12 miles I drove (1971 Dodge Dart), today I demand one gallon of gas for every 50 miles I drive (2010 Toyota Prius). So I have cut my demand rate by 75%.
Charles Kiting,
ReplyDeleteThe purity of the gasoline isn't being accounted for in your numbers. There was almost no ethanol in most gasoline in 1976 and today there is almost no gasoline WITHOUT ethanol. You have to make a hedonistic adjustment somewhere.
I think your analysis is corny.
/pun ;)
I posted a vehicle miles per capita chart back in December. Talk about rolling over! It would be interesting to combine that with higher mpg.
Annual U.S. Vehicle Miles Per Capita
It would be interesting to combine that chart with the following.
Gasoline Station Sales