free html hit counter Peak Oil Debunked: 302. THE REAL SOURCES OF INFLATION

Friday, May 12, 2006


There's a lot of peak oiler hype about soaring food/fuel prices, but that's not where most inflation comes from. The following graph speaks volumes:

As you can see, in real terms, the price of food/gasoline hasn't increased at all over the last 20 years.
--by JD


At Friday, May 12, 2006 at 12:49:00 AM PDT, Blogger Dom said...

This is starting to become fun.

And "past performance does not garentee future performance".

Funny that you picked exactly the time frame when oil price was low to make an "analysis"...

At Friday, May 12, 2006 at 12:53:00 AM PDT, Blogger Supreeya said...

You write great, something that lay hidden while the whole world is fuming at the increment in gasoline prices. Something that shows us that we are just being stupid, without analysis we scream at everything possible. Thanks and keep up the good work!

At Friday, May 12, 2006 at 6:33:00 AM PDT, Blogger Paul Ramsey said...

It is also interesting to not that despite the current howls of pain, the gas price is just at the lower edge of the levels that prevailed for several years in the early 80s. The inflation adjusted gas price chart is interesting reading, though I wish I had found one that went back farther in time.

At Friday, May 12, 2006 at 9:07:00 AM PDT, Blogger Robert Schwartz said...

The High Costs of Cheap Gas and Vice Versa by David Leonhardt, NYTimes, May 10, 2006

What really matters to people is the cost of the gas that is needed to drive a mile, a function of both the price of oil and the fuel efficiency of cars. By this measure, gas for the average American now costs about what it did throughout the 1960's and early 70's and much less than in the early 80's.

Gasoline is the only product whose price is displayed on 20-foot-high signs in just about every town in the United States, which is why we get a little crazy when the price of it is rising. But those signs aren't an especially useful way of thinking about the cost of gas, for two big reasons.

The first, more obvious one is that people forget about general inflation. Over time, the price of most everything — milk, blue jeans, movie tickets, health care, life insurance — rises, as do people's incomes, and the increases largely cancel each other out. ...

But the cost of gas itself is only part of the story. The other part is how far that gas will take you. If you think about it, you care about how much you pay to drive 100 miles, not how much you pay for a gallon of clear, pungent fluid.

In the 1960's, when people were buying Country Squires and El Caminos, vehicles were getting just 14 miles to the gallon on average. Gas was cheap at the time, but with all the guzzlers on the road, drivers were still spending an average of 15 cents a mile on gas. (All these numbers are adjusted for inflation.) ...

But the oil crises of the 1970's and early 80's changed everything. The cost of gas spiked, eventually reaching 20 cents a mile, and the government passed a law in 1975 forcing vehicles to become more efficient. Thanks to that law and 20 years of mostly falling oil prices, Americans spent less than 7 cents a mile for gas in 1998. Today, gas again costs about 15 cents a mile for the average driver, which gives the country some incentive to become more energy-efficient. You can cut the cost to 10 cents a mile, for example, by driving a Honda Civic or Toyota Corolla.

At Friday, May 12, 2006 at 11:20:00 AM PDT, Blogger Freak said...

Now that i think about it in historical context It's no wonder my grandparents bought a 1977 Lincoln with a 7.5 liter engine 4-bbl carburetor and in pristine condition with all options at sometime in the 90's for under a $1000 with under 50000 miles on it. That car was screwed the minute it was built. It got about 7 mpg. I refused to drive it when gas was $0.90 per gallon.

At Friday, May 12, 2006 at 1:09:00 PM PDT, Blogger Floccina said...

Consider also the ICE has improved its efficiency by close to 1%/year for some time now so you get more miles per gallon for a given level of comfort and performance now than you did in the past.

At Friday, May 12, 2006 at 1:16:00 PM PDT, Blogger DC said...

A big source of this inflation is land use patterns (i.e. suburbia). Before the ludites rejoice, don't interpret that statement as any kind of value judgement. It's simply part of the hurdle rate (a.k.a. opportunity cost, shadow price, etc.) that folks face when deciding whether to go for a single family property vs. a multi family property in an urban setting.

At Friday, May 12, 2006 at 1:19:00 PM PDT, Blogger DC said...

I was somewhat vague in that last post. Sorry. I wasn't trying to reiterate the tired notion of fuel cost per mile. I meant the cost of the infrastructure (e.g. more sewer pipe length per person, more street length per person in suburbia).

At Friday, May 12, 2006 at 2:55:00 PM PDT, Blogger Freak said...

It seems strange to me also that when it comes to personal automobiles, the manufacturers refuse to produce a vehicle with all fuel efficient technologies currently available. I mean what kind of mileage today would a turbo-diesel direct injection plug-in hybrid get and what would that do for consumption?

At Friday, May 12, 2006 at 3:54:00 PM PDT, Blogger Thomas said...

freak said:
It seems strange to me also that when it comes to personal automobiles, the manufacturers refuse to produce a vehicle with all fuel efficient technologies currently available.

I attended a conference on PO and mitigation, hosted by Bob Hirsch in Washington in Oct 2005. There was a prof Heywood from MIT who said that auto manufacturers have a dozen or more fuel saving technologies on the shelves, basically already developed . The only reason they are not employed is because of the (low) price of gas.

This was in response to discussions about hybrids etc. His position was that for the price of hybrid technology, conventional improvements could go a long way.

Let me, just of the top of my head, mention some of these technologies:

1) Cylinder shut-off (already employed in some cars
2) Advanced turbo technology
3) Variable compression ratio
4) Engine shut-off at stand still (employed in the VW Lupo TDI 3L)
5) Advanced diesel technology (with particle filter)
6) Exhaust gas heat recovery to produce steam for a steam turbine (investigated by BMW - My job is designing such EGHR boilers for ships' main engines)
7) Advanced materials - both for engine efficiency and weight savings
8) Etc.

BMW have disclosed that they intend to regenerative braking, start/stop and gasoline direct injection in all models in the future Source

So really, there's a whole phletora of possible improvements that are likely to find their way into future cars given the current emphasis on fuel costs.

I still prefer plug-in hybrids because they are an important step towards oil independence. Plus the battery capacity in millions of hybrids doubles as a substantial electricity storage for increased renewable energy.

Still, I'm not sure how much it matters, if you feel you need a F150 truck to feel like a man...

Drive safe!


At Saturday, May 13, 2006 at 1:37:00 AM PDT, Blogger Dom said...

Leonhard's argument, although quite true, misses one important aspect. He assumes that the average miles driven per person per car stays the same. I bet this number increased quite a lot in the US since 1960. Meaning, we no longer drive 100 miles but 200.

But the whole argument is academic because up until at least 2005, oil supply has been increasing. Prices haven't even begun to rise, in comparison.

At Saturday, May 13, 2006 at 1:54:00 AM PDT, Blogger Dom said...

"There are about 730 million cars in the world, 210 million of them in the U.S. Many U.S. citizens have chosen to drive large cars, most of the time alone. Each car in the U.S. travels an average of 12,000 miles per year. Every American travels an average of 17,000 miles per year. The average trip carries 1.5 passengers. The average car weighs more than 3000 pounds and consumes an average of 550 gallons of fuel in a year."

What is the comparison to 1970? Didn't find that on a quick search of the net.

At Saturday, May 13, 2006 at 4:38:00 AM PDT, Blogger Dom said...

JD, found an article which would inspire a number of posts for your retired blog - if you turn the logic around:-)

"After 1960 there was almost no improvement in electricity generation efficiency. The new rail transit and light rail in the last quarter of the 20th century must be compared with an auto of increasing fuel efficiency. So today, electric rail transit is only perhaps about 25% more energy efficient than the auto-SUV in urban use."

At Saturday, May 13, 2006 at 11:13:00 PM PDT, Blogger Mel. said...

So really, there's a whole phletora of possible improvements that are likely to find their way into future cars given the current emphasis on fuel costs.

An excellent key point about mitigation paranoia. The consistent belief that these technologies don't exist is severely hamstrung by the fact that they clearly DO, but haven't been refined or implemented because of greed-suck and cheap oil.

When the fight suddenly becomes all about who's building the most fuel-efficient vehicles, the "technological advances" that we're supposedly going to be treated with are going to be obnoxiously overwhelming. Everyone's got aces and jacks up their sleeve, they're just waiting like a bunch of grossero idiots for the right moment to spring them on the public.

Innate exploitation of the consumer and the corporate push for profits. The ultimate solution to PO, and the launching pad for all sorts of new problems.

At Monday, May 15, 2006 at 11:11:00 PM PDT, Blogger Arthur said...

Oh come on, gasoline prices were at their highest in 1982-1984. Pick a different starting year and you'd get quite different numbers - this is a bogus comparison. At least admit that the pretty graphic depends strongly on the range of dates you're comparing.

I'm not saying gasoline prices are way out of line, they're not, but this comparison is really misleading.

At Friday, May 19, 2006 at 9:25:00 PM PDT, Blogger MikeW said...

You are all wrong. Price increases are a result of inflation not the cause. The only cause of inflation is the rise of money supply. If the supply wasn't there people wouldn't be able to pay the increases in prices.

What does this mean? Prices rise the most for the products with the least competition and things we are most passionate about i.e. (health care and college education). But over time it trickles down to consumer items like gas and food.

Whose to blame? Your government and you. You want your government to do and pay for everything and our weak politician are only happy to say yes to win your vote. They spend the money and the FED just prints it or issues BONDS which is just as good as printing it? That is the true cause of inflation.

They have been doing that for a long time so why should inflation spike now? Because they have really cranked up the printing press to pay for IRAQ, Katrina and the Homeland Security Crap.

YES the spike in oil prices has caused and increase in the price of gas and other consumer goods. But if the supply of money wasn't there you wouldn’t be able to pay for those goods for long. The economy would adjust and prices would come down or you would just learn to live with less. BUT that won't happen cause the printing press will find a higher gear and all will be happy.

How can this continue? IT CAN'T. At some point interest rate will have to be raised to the levels of the early 80's or beyond. This put a major contraction on the economy and the money supply.

Bummer isn’t there an easier way out? Yes it's called HYPERINFLATION. If your not sure what that is see Pre WWII Germany or 1990's Brazil.

Good Luck

At Wednesday, May 24, 2006 at 8:56:00 AM PDT, Blogger occamsnailfile said...

I would like to propose an alternate chart of inflation adjusted gas prices that does not start in 1979 or 1982-4, offered to us kindly by the American Petroleum Institute and linked from the ConocoPhilips site.

And another, from an oil-producing coalition-- this is for the price of crude rather than gasoline, but it shows the same trend, as one might expect.

Other costs have increased as well, obviously, but the assertion that gas prices are 'normal' based on the oil embargo prices is rather silly. I don't think we're on the edge of a massive energy-based cataclysm but the picture isn't nearly so rosy as all that.

At Wednesday, June 6, 2007 at 7:11:00 PM PDT, Blogger Phillip said...

nice cherry picking JD - Why did you pick the two years during the Iran-Iraq war (which, as everyone knows caused the oil shocks) to compare with a recent time when prices were lower than average for the past 3 years? A bit of honesty in your analysis wouldn't go astray.


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