150813 Fuel costs vs CPI
  • Recap. Last Thursday’s To The Point post had a simple graph attached to it. Two more-or-less-diagonal lines rose from the bottom corner, with one rising more quickly than the other. The faster one represented housing costs, which have gone up by 55 per cent over the past decade. The slower one represented our nation’s preferred measure of inflation, which has gone up by 28 per cent. The idea was, in part, to illustrate that not all prices rise equally; a straightforward point, but one with terrible implications for household budgets.
  • Fuel vs CPI. Today’s To The Point post does a similar job, but with transport fuel costs rather than housing costs. And the outcome is rather different. There’s the same orderly line for prices in general, which have still risen by 28 per cent since 2005. But the other line, representing petrol and diesel and motor oil, zigzags crazily up and down. At one point, in April 2012, fuel prices were 63 per cent higher than they were a decade ago. Now they’re just 34 per cent higher, which isn’t too distant from the overall measure of inflation.
  • The oil effect. This, of course, is explained by the eternal inconsistency of oil prices – which we’ve covered previously. At that point in April 2012, a barrel of crude was selling for roughly $120 in the global marketplace. Now it’s closer to $50. These prices have percolated down to the forecourts.
  • Self-contained prices… All of which is to say, some prices are more self-contained than others. Take those housing costs: they’ve basically done their own thing over the past decade, rising steadily, as demand hasn’t been adequately met by supply. Whereas fuel costs depend on so much else. They’re affected by wars. They’re affected by fluctuations in foreign economies. They’re affected by technological advances in motoring. And more. They are a great unpredictable.
  • …and spillover prices. And fuel costs also spill over to other prices, in a way that housing costs do not. If supermarkets have to pay more for transporting their food around, then it’s likely that we will have to pay more for that food. Likewise other commodities. When it comes to working out inflation, some prices count more than others.