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30 comments on Consumer Confidence and Gas Prices

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Stuart Staniford on November 30, 2005 - 6:16am Permalink | Subthread | Parent | Comments top
The particular correlation I measured is between the percentage CSI change from one month to the next, and the percentage gas price change from one month to the next. Those price swings are generally much larger than inflation from one month to the next any time recently (which is going to be much less than 1%), and therefore there is negligible error in my correlation measurement. The only thing that is not quite right is the visual impression of the gas line in the first graph. On the other hand, if I put in a CPI deflator, all the folks who believe the CPI is an evil conspiracy to hide the true level of inflation could pop up and argue it was way off anyway (the pre-Clinton CPI differs from the current one by several percentage points a year, apparently, which is going to compound to pretty big factors of difference over a few decades).
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Oil CEO on November 30, 2005 - 6:48am Permalink | Subthread | Parent | Comments top
Inflation shouldn't compound. It only appears in the month or year it occured.

The Pre-Clinton CPI numbers are bigger because inflation was much bigger(Pre-Greenspan).

If inflation was 12%(I'm guessing) in 1978 versus %1.5-%3.0 in the 1990's, that 12 percent is not going to compound.

For the sake of argument,let's say inflation was 12% in 1978 and 1% every year after that. Well 1978 dollars would be converted to 1979 dollars(in 1979) by mutiplying them by 1.12. End of story.They are now 1979 dollars.

In 1980 we would be converting 1979 dollars to 1980 dollars by multiplying them by 1.01. The 12% is history.
If we revise that 12% to 15% later we only have to go back to the one calculation in 1979 to make the change. There is no compounding.

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Oil CEO on November 30, 2005 - 7:31am Permalink | Subthread | Parent | Comments top
I ammend myself. You are correct,corrected inflation does compound - only not in the way that true compounding implies. It is heavily diluted over time.

For instance, if we start with a dollar in 1970, and call inflation 5% in 1970, and 2.5% every year afterwards, we get $1.31 in 1980.

If we go back and correct inflation by a huge 5% in 1970 to 10%(highly unlikely, worst case scenario), we get $1.37 in 1980. 6 cent difference. But 5 cents of that occurs in first year, the other cent takes 9 years to accumulate due to this compounding.

Assuming corrections happen in both directions, cancelling each other out over time, would it be reasonable to assume that that "ballpark" is again the key to dealing with inflation?

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Oil CEO on February 10, 2006 - 10:17pm Permalink | Subthread | Parent | Comments top
Test Post

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Oil CEO on February 10, 2006 - 10:42pm Permalink | Subthread | Parent | Comments top
Test Post

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Oil CEO on February 10, 2006 - 11:25pm Permalink | Subthread | Parent | Comments top
TEST POST

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Oil CEO on February 11, 2006 - 12:01am Permalink | Subthread | Parent | Comments top
oilprod2005
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