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.
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