Correcting a Couple of Inflation Whoppers
Over at National Review’s Capital Matters site, I have a piece pointing out that today’s high gas prices aren’t caused by inflation. They’re caused by a supply shock due largely to Putin’s unprovoked war with Ukraine. The reason is that inflation has to do with money supply, and supply shocks do not:
The increase in gasoline prices far exceeded the overall inflation rate. According to the St. Louis Federal Reserve’s FRED database, the average nationwide gas price was $3.37 per gallon at the end of January. On March 7, it was $4.10—a 22 percent increase. In February, the consumer price index for all goods, which includes gasoline, increased by 0.8 percent.
While the Fed can control the money supply, it cannot do anything about supply shocks. But that isn’t the only whopper making the rounds right now. Gas prices did not, as widely reported, set new record highs last week:
GasBuddy said on March 7 that gas prices would likely set an all-time high on March 8, but did not adjust for inflation. Students know to do this, but some professionals apparently do not. CNBC and The Hillreported GasBuddy’s numbers without pointing this out. USA Today mentions the error, but then carries on as if it didn’t matter. It does.
Going back to the FRED database, before now, the highest recorded nominal (not inflation-adjusted) gas price was $4.12 per gallon, in July 2008. Using the Minneapolis Fed’s handy inflation calculator, that would be $5.19 in 2021 dollars. With the inflation observed so far in 2022, it would be equivalent to $5.23 today.
Read the whole piece here.