Monday, May 07, 2007

The most affordable gasoline...

American agriculture's persistent claim of the "most affordable food in the world" has caught the attention of other commodity purveyors. Like gasoline:
There are probably three reasons that gasoline prices appear so high to us today. First, many don't fully appreciate the long run effect that inflation has on prices. Second, many don't appreciate how much our incomes have increased relative to prices. Finally, we still remember 1998 very well, the year in which we encountered the lowest gasoline prices since 1949. Gasoline in 1998 sold for $1.03 per gallon, the equivalent of $1.21 in today's currency. Adjusting for growth in per capita income yields a price of $1.35 per gallon in today's terms. Today's price is more than double that and people resent the increase over the last several years, in part, because they think that 1998 prices were normal. But they were not.

Now let's put the recent price increase in terms of real outlays. The average household is spending $136 more on gasoline every month than it was in 1998 and $114 per month more than it were spending in 2002. But, believe it or not, real (inflation-adjusted) disposable income per household has increased even faster than have pump prices; by $800 a month since 1998 and $279 a month since 2002. [More]
Wow - I guess we owe a big "thank you" to the petroleum industry. Or we need to get real about claims like this.

Interestingly, "affordability" is not due to actual food cost - which has exceeded inflation for like, forever. It's due to income increases.

What else is "affordable"? Well, about anything that has increased in price less than disposable income. My guess is this particular spin campaign could be hijacked by all kinds of vendors.

We need a new slogan. Or at least, a more accurate one.

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