Has inflation hit you like a truck? A big diesel truck guzzling gas like it’s 1979? If so, I bet gas prices were a significant source of that pain. Even if you don’t drive, gas has undoubtedly impacted how much you spend on daily items. Trucks burning gas deliver most necessities, after all. But just how much has gas been the driver of inflation? This question was tackled by the researchers at the Roosevelt Institute where they pulled together an array of economic data on the subject. Here I give an overview of some of the major findings of this study. The original study can be found here. All images are copied from the study under the creative commons license associated too them.
TLDR; Oil and utility gas prices tend to fluctuate wildly, while electricity prices are historically steady. The constant boom and bust of oil and gas are a major source of inflation and recession.
Oil & gas along with cars are responsible for half of all recent inflation.
The chart below shows the inflation rate over time going back to 2019 for various categories. The purple bar represents inflation due to anything that isn’t oil, utility gas, and cars. For instance consumer goods and services like groceries, amazon packages, dog food, cell phone bill, child care, etc. The “other” inflation bucket starts creeping up starting later in 2021 peaking at around 4% in March 2022. Strikingly inflation due to oil, gas, and cars goes up almost just as much as everything else combined. This is demonstrated by the light blue, dark blue, and yellow bars. Rising prices of oil, gas, and cars account for a ridiculous amount of inflation over the past year.
Oil suffers from continual spikes in price setting whereas electricity does not.
So far this is probably not too surprising. Most people don’t need a chart to tell them that gas has been too expensive lately. But what may be surprising is that oil and utility gas price spikes 1) usually precede times of recession and 2) these inflationary spikes are a regular occurrence. The moral of this story is that the current rise in gas prices may seem like a short-term problem, but in reality, inflationary spikes in oil and utility
gas are a regular occurrence that, likely, can’t be fixed.
The evidence for points 1&2 above is shown in the following charts.
Oil and gas price spikes precede times of recession with the exception of the 1960 and 2020 recessions. Recessions are shown as gray bars, and oil price per barrel is shown as a green line in 2020 dollars.
Inflation of oil and gas regularly spikes in a way that electricity doesn’t. In fact where inflation from electricity (darker purple line) sometimes fluctuates in the 0-10% range. Inflation from Oil and utility gas fluctuates wildly in the -20% -> 50% range.
Conclusion
The lack of predictability in oil and gas is a major burden on the economy and the wallet of average Americans. On the other hand, electricity prices are relatively predictable and that predictability can lead to a more stable economy, leading to fewer recessions. To release this stability we need to wean ourselves off of fossil fuels and electrify everything!
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