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Politics : Sioux Nation
DJT 13.90-3.4%Jan 12 3:59 PM EST
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To: Wharf Rat who wrote (66086)5/3/2006 4:35:45 PM
From: CalculatedRisk  Read Replies (3) of 362247
 
With a few exceptions (I'll get to the exceptions), the price of gasoline has been declining in real terms (inflation adjusted) for a century. For your example, a person with a similar starting job would usually be able to buy more gallons per hour worked than their parents.

This makes sense: a combination of economies of scale and a learning curve has made the oil/gasoline industry more efficient.

Now the interesting part: the exceptions. The first major exception was the Depression. The real price of gasoline increased, even though the retail price (nominal price) stayed steady in the '30s - this was a period of deflation.

The next exceptions were in the '70s - the two supply driven oil shocks. Nominal prices rose significantly, reaching $1.37 per gallon for 1981 (National Average for entire year). That equates to $2.96 per gallon in 2005 dollars (real terms).

The final exception is the last few years. Real prices are near the record highs of 100 years ago and 1981. Since the real price has recently risen so dramatically, your daughter can buy less per hour than you with a starting job.

So why are real prices near record levels? Especially when the long term trend is for cheaper real prices?

Clearly demand has risen faster than supply in the least few years ... mostly because of the surge in demand in China and other countries. Currently there is very little excess capacity in the World.

Was the oil industry caught off guard by the surge in demand? Or is it a more sinister problem - peak oil - and they simply cannot increase the quantity supplied. We don't really know.
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