Gasoline prices roughly in line with inflation, for now

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Posted at 11:07 a.m. PST Thursday, March 9, 2000

Gasoline prices roughly in line with inflation, for now HOUSTON (AP) -- Despite wallet-shrinking prices at gas stations nationwide, history suggests the current record price per gallon is not unusually high when adjusted for inflation.

``The high point was 1981, then it dropped down,'' said William S. Peirce, a professor at the Weatherhead School of Management, part of Case Western Reserve University in Cleveland.

According to government figures and those of the American Petroleum Institute, a trade group, the last two years have brought the cheapest gasoline on record -- after inflation. Gas in 1981 was priciest, at an equivalent of $2.47 in today's dollars.

The meteoric rise from mid-80-cent range last winter to the mid $1.40s today was brought on by worldwide production cuts and scant domestic gasoline inventories. It has sent prices back to levels consistent with the ``good-old days'' of the early 1970s, prior to the first price shock caused by the Organization of Petroleum Exporting Countries, or OPEC.

The API's calculation of Energy Department figures using the government's Consumer Price Index shows the February average of $1.44 per gallon is just a penny higher than the real-dollar equivalent of what drivers paid in 1972, when gas sold nominally for 36 cents.

Edward Sattler, a professor of economics at Bradley University in Peoria, Ill., said that Americans who began buying efficient foreign cars in droves during the 1970s and 1980s have done the opposite recently, with inexpensive gas in 1998 and 1999 fueling a national armada of thirsty sport-utility vehicles.

``Gas has been unbelievably cheap,'' Sattler said. ``In real terms it's been very inexpensive in the past few years, that's why people have gone to SUVs.''

Though average fuel prices might be close to traditional levels with inflation factored, Sattler predicted increased prices could change buying habits again.

``We're on the threshold of leaving the area where people consider gasoline is at a fair price,'' Sattler said.

Later this month OPEC will consider proposals to boost production and bring down prices that some economists feel will harm the world economy. But such a boost will take many weeks to filter through to refiners and retailers. So, the U.S. Energy Department predicts that summer gas prices could leap 30 cents or more from the current $1.44 average.

http://www.sjmercury.com/breaking/docs/072276.htm

-- Martin Thompson (mthom1927@aol.com), March 09, 2000


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