Why does the price of gas not seem to be affected by inflation even though industries related to the extraction/processing of gas seem to be affected?
In: Economics
For many cases, you are looking at this the wrong way.
Gas prices are inflation. Gas prices go up. Cost of fuel for farmers go up. Cost of transportation go up. Costs of energy go up.
Result: the cost of everything goes up.
Now, that isn’t to say that the price of gas is the only thing that can cause inflation (it’s not by a long shot), but it has massive downstream effects on, well, everything.
Oil companies are also balancing a couple of factors that drive the price of gas:
* Cost of production
* Profit margins
* How much they can charge
Now, the gas market is rather inelastic since it is so woven in our economy. This basically means you can’t really stop buying it. In a sense, that would mean oil companies can charge whatever they want. On the other hand, if they jack up the prices a lot, governments and people will start taking a much closer look at their activities. It comes down to charging as much as they can get away with without the pitchforks ad torches coming out. Basically, they are playing a balancing act between their costs which can indeed go up due to other causes of inflation (like labour, supply chain disruptions, etc.), profits, and really going too ham on making pools of money.
Because gas is a highly fungible, traded commodity. The cost of the fuel is not directly influenced by what it cost to produce it. It’s influenced by the financial markets that trade it
When you buy pop tarts, Kellogg’s sets the price based on what they think consumers will pay but they are going to guarantee they make their money back at least
When you buy gasoline, the producers just go to the one big gasoline market and try to sell it for whatever people will buy it for. Sometimes the demand for gas is low, so there’s not a lot of people trying to buy it and those who do don’t want to pay a lot
On the other hand, if you’ve got a tank full of gas you need to move it, and you don’t want to hold on to it (some producers can hold SOME gas) so you’re going to just sell it. In fact, for a brief period of time in 2020 during the deepest depths of COVID, oil (which behaves very similarly) had a negative price
Longer term, the price of gas is absolutely influenced by inflation and everything else, as in the short term producers may take a loss, but eventually they will simply stop producing and then that will cause the price to rise since there will be less to buy at the market. Which, in and of itself is an inflationary pressure. It’s not just gas responding to inflation, gas prices cause/are inflation
Back in the 90’s I could fill a 35 L tank for $16. Today it costs more than $50. Isn’t that affected by inflation?
Because oil/gas are traded on the open markets it’s subject to supply/demand price influences like a certain country dumping strategic oil supplier to artificially suppress gasoline prices and make consumers think everything is ok in the emerald city before an election cycle.
Which is ironic since that same country is stopping as much oil production/pipelines/etc from their lands as possible.
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