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Gas Price Spike: It’s the Monetary Policy, Stupid



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Here’s a great post from the Seeking Alpha blog on the real cause of the increase in gas prices. An excerpt:

Monetary stimulus is not only juicing the stock market at the expense of savers, it is also sucking additional money directly out of their pockets. As shown above, inflation data often excludes food and energy prices because these two measures are inherently volatile. But if the actions of the Federal Reserve are directly causing these measures to consistently rise, these two items must be included in the assessment of overall inflation, as their policy actions are causing these readings to become much more consistent and predictable. One particular segment where Fed policy is directly resulting in skyrocketing prices is at the gas pump. From the first day that the Fed began engaging in quantitative easing back in early 2008, the impact on gas prices has been profound.

Gasoline prices have followed a predictable trend since the first days of Fed stimulus. During QE1, gasoline prices skyrocketed by +118%. Once QE1 ended in April 2010, gasoline prices immediately dropped by -27% in a matter of months, and this occurred during what is typically the strong summer driving season. Once QE2 was delivered to the market in August 2010, gasoline prices jumped another 92% by the end of this stimulus program in June 2011. Once again, the moment QE2 ended, gasoline prices retreated another -28% in a matter of months. Finally, since the latest Fed stimulus program along with the European Central Bank’s own LTRO program, we’ve seen gasoline prices skyrocket another +30%. What is even more irksome is that much of this rise in gasoline prices has occurred during a time when gasoline consumption has been falling. Have the laws of supply and demand been repealed? No, they’ve just been severely distorted by policy action.

Read the entire post here.



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