Tuesday, December 20, 2011

Explain This Paul Krugman: Gas Prices at All-Time Christmas High

According to figures from AAA, the nationwide average for regular unleaded is $3.21 per gallon — an increase of 23 cents over last year’s Christmas record.

I'm sure Deflation Paul has an explanation.



  1. "Gas prices dont count, they arent in the core CPI. There is no inflation" - (likely) Krugman response.

  2. Wenzel, you big bully why don't you pick on someone your own size ;P (like Mish, for example)

    Keep up the good work.

  3. "Volatility" is the answer for everything he can't explain with his predictions, which is quite a lot these days.

    Just because people have to pay far more for their food and gas these days doesn't mean we have inflation! Ok, I think I said that with a straight face...

  4. In Sweden, a gallon of gasoline costs 7,30 USD.

  5. Or, it could be that growth rates of population and energy needs is well ahead of supply.

  6. Anders,

    What is the taxation rate in Sweden on gasoline? Regardless, gasoline and food are both very high right now, much higher than even a year or two ago.

  7. Come on, Bob! Don't you realize Americans only care about the prices Europeans pay for goods!?

  8. The political terrorists in Sweden are anti-car...Im actually surprised gasoline isn't illegal.

  9. More people around the world are driving cars, Oil is harder to get than it once was. Greater demand combined with decreased supply results in higher prices without having to turn to inflation for an explanation.

  10. Krugmanites never believe in supply and demand until they can use them to explain that any increase in prices is not induced by monetary expansion.

  11. The price of oil compared to other commodities, such as gold, is a great indicator that inflation is most certainly a contributing factor to the rising costs of oil and gasoline. Gold of course is real money!

    Would you argue that food prices are going up solely because supply and demand? Supply and demand, and volatility may be adeqeuate responses when looking at a singular commodity; but looking at the rise in prices of most commodities across the board indicates inflation as significant factor.

  12. @Robert Lewis

    Not to mention the increase demand for turtle doves, lords a leaping, and, ahem, gold. +4.4% for the 12 gifts

    Actually Lewis brings up a good point, it is conceivable that oil price increase is due to supply/demand issues of its own. But I don't understand this emphasis on the CPI, didn't Rothbard explain that the idea of a price index is flawed? But again if you are going to use these flawed instruments be consistent, Lewis do you deny changes have been made in the CPI calculation that make nonsense of a thirty or forty year chart of CPI changes? Smooth or otherwise, GIGO

  13. I guess the demand for food and gas both happen to be going up at the same time. What a coincidence!

  14. Nathan/Anonymous:

    Inflation is demonstrated when the price of most things goes up, not when the price of a single thing goes up. The CPI, both headline and core, show that the price of things, in general, have not been going up by significant amounts

    There, of course, can be price changes unrelated to inflation. When the price of one thing goes up significantly more than the price of everything else, it is likely that it is not inflation related.

  15. Lysander:

    I don't have first hand knowledge of the actual formula for the CPI. However, this is from the Bureau of Labor Statistics addressing your question:

    Has the BLS selected the methodological changes to the CPI over the last 30 years with the intent of lowering the reported rate of inflation?
    No. The improvements chosen by the BLS that some critics construe to be a response to short term political pressure were, in fact, the result of analysis and recommendations made over a period of decades, and those changes are consistent with international standards for statistics. The methods continue to be reviewed by outside commissions and advisory panels, and they are widely used by statistical agencies of other nations.

    Moreover, the sizes and effects of the changes implemented by the BLS are often over-estimated by critics. Some have argued that if the CPI were computed using the methods in place in the late 1970s, the index would now be growing at a rates as high as 11 or 12 percent per year. Those estimates are based on the belief that the use of a geometric mean index lowered the annual rate of change of the CPI by three percentage points per year, and a belief that other BLS changes, such as the use of hedonic models and rental equivalence, have lowered the growth rate of the CPI by four percentage points per year.

    Neither belief is supported by evidence. BLS calculations have shown that the geometric mean formula has reduced the annual growth rate of the CPI by less than 0.3 percentage points. Hedonic quality adjustments for shelter regularly increase the rate of change of the CPI, and those for apparel have had both upward and downward impacts at different points in time and for different types of clothing. The BLS estimates that the overall impact of hedonic quality adjustments in use in other categories has been extremely small. Furthermore, if the CPI were using the pre-1983 asset-based method instead of rental equivalence to measure homeowner shelter cost it would yield a sharply lower current measure of shelter inflation, given that house prices are now declining in many parts of the country.