The St. Louis Federal Reserve’s economic research unit (FRED) has published two brief articles this past week analyzing trends in gas prices, both recent and long term.
Both provide evidence for those who would seek to turn the debate political about the increases.
The first article is the Long Term Trend in gas prices. The analysis has two conclusions:
- Average annual CPI inflation from 1990 to 2021 was 2.4%, while average annual gasoline price inflation was 3.9%.
- Increased demand for gasoline is not likely the primary reason for gasoline price increases over the past decade, however. It increased from 62.9 million gallons in 1990 to 80.4 million gallons in 2006 but began to decrease in 2006. In 2019, U.S. motor gasoline consumption was 80.9 million gallons—only 0.5 million gallons more than motor gasoline consumption in 2006.
The macroeconomic result is that expenditures on motor gasoline made up a smaller percentage of GDP in 2019 (1.7%) than they did in 1990 (2.1%).
Feathers and Rockets: The Consumer’s Disadvantage
The second analysis tracks the relation between the price of oil and gasoline at the pump.
The article’s conclusion: When oil prices shoot upward, gas prices rise with them. And when oil prices fall, gasoline prices also fall; but they can fall at a slower rate. Economists refer to this market dynamic as “asymmetric pass-through.” A more colorful description of the phenomenon is “rockets and feathers.”
The chart in the article is dynamic allowing the user to focus on recent changes. This phenomenon doesn’t occur every time oil prices fall, but can be seen in recent months: at the beginning of December 2021 and at the end of March 2022.
Why Members Are Angry
How one interprets the charts and data in these articles will probably influence which political interpretation for higher prices a person is inclined to believe now.
Both articles highlight the reality of retailer market power and consumer search costs as reasons why many members (consumers) feel so frustrated by the seeming monopolistic pricing patterns when paying for gas at the pump.
Their anger is more than high prices. It is the absence of “consumer sovereignty” (choice) the supposed hallmark of a market economy.