Paid $3.79 USD a gallon yesterday making this quickly out of date.

Despite appearances my car is pretty easy on petrol averaging 23 to 24 mpg in commuter driving and nearly 30 mpg when on the highway. Better than a family sedan, most smaller cars and certainly an SUV. The issue isn't the gas price itself, it is the rabid inflation that has come with gas prices recently. It was not long ago when I came to Arizona that I was paying $2.50 a gallon.

While petrol is a small cost in monthly expenses for most people, being around than 25% of the monthly budget, rapid inflation that has been occurring recently does pinch. There is no way that salaries can expand so quickly to cover the increase costs of fuel, food and other essentials of modern living.

The US and Australia have it better than most countries as gas/petrol is pretty cheap. An English friend of mine complained about paying 75 pounds to fill up his car. We worked out it was about $9.50 USD a gallon he was paying. I recall when I was in Germany a couple of years ago being horrified at how much a tank of petrol cost.

I make a decent living and do pretty well for myself, if I am noticing the increased costs of gas, then I can only imagine what most other people are thinking of this recent inflationary burst in the cost of living.

Over the past few years relatively inexpensive fuel along with the high relative cost of living in the Washington, DC metro area (especially housing) has resulted in unskilled workers living progressively further and further away from low paid jobs. They spend hours each day commuting to work a shift ringing a cash register, stocking grocery shelves, moving boxes in a warehouse, and generally doing the things that need to be done, but require little or no skill to perform. For people making a good salary, the increased price of fuel is not welcome, but can be dealt with. For the driving class, the situation is becoming untenable.

As an example, consider the following:

70 miles one way commute,

25 miles per gallon,

$8.00 per hour salary, and

40 hours per week.

This equates to $112 per week cost for fuel. This expense must be born with a $320 gross (before taxes) base weekly salary. With 35% of gross salary being used to buy fuel, there is not enough left to cover basic living expenses. I have presented this as an example, but one of the guys on my team has a daughter who is in exactly this situation.

What can she do? Some would say - "She should move closer to her job!" Given her salary, she could not afford even a very inexpensive apartment, so this is not really an option. Others might say - "She can always find a job closer to home..." She would, if the jobs were available. Outside of the metro area, unskilled positions are difficult to find and generally pay minimum wage ($5.85 per hour, moving to $6.55 per hour on July 24, 2008). As it stands, she makes up for the added cost by working longer days so that each trip nets more income. The current tight local labor market makes additional hours easier to come by than if unemployment were higher. Of course, she also relies on her family.

Zooming out from the personal level, what does this all mean? The minimum wage change hints at the answer to that question. As fuel prices continue to rise (and we all know they will!), those in the driving class will be forced to make the choice between continuing to drive and dropping out. As more choose the latter, employers will have no choice but to raise salaries to entice them back. Given this type of pressure, a US inflationary cycle is almost a foregone conclusion. What about the rest of the world? The interconnected nature of the world economy and crude oil price increases would seem to drive this same conclusion not just for the US, but for the rest of the world as well.

I keep my receipts being somewhat of a data hound. Fueling up the other day I noticed that a gallon of premium gas was $3.92 USD - perilously close to the four dollar mark. I decided to graph my petrol receipts for the last month.

It has been a rapid and bumpy climb; a trendline 50c increase in less than thirty days. The high amount of inflation is real especially if I am noticing it each time I fill up. We aren't quite to the level that the Cunning Realist notes of high inflation economies (ie order two as the second will be more than the first), but there is no price stability if I am paying more each time I go to the pump to fuel up. Is it a failure of the federal reserve or the energy market?

For some longer price memory, via the gasbuddy, a six year graph of US gas pump prices.

I payed for $4.25 for premium at the pump tonight. Surprised me that it had leapt 25c in the space of seven days.

Apparently supply is not keeping up with demand. Worse, it appears that the petroleum products dropped 2.5% in supply despite a 57% increase in prices. The market adage that the cure for high prices being high prices is not working in this instance.

My commute is approximately 22 miles one way and my car gets approximately 22 mpg in commuting traffic. When I came to Arizona gas was at about $3 a gallon and a reckoned I would shoot $6 a day in fuel getting to work and back. Over a year that would cost $1,560 excluding weekend work.

With gas being $4.25 that makes my daily commute cost $8.50 a day. Total cost is $2,210 a year; so about $700 more expensive a year for commuting at this price.

I payed $4.45 a gallon today for 91 octane gas. Nearly a 20c jump in the space of a week. We are getting into high inflation territory that places like Zimbabwe suffer from where you have to fill up all your cars at once because it will be higher tomorrow. Not cool. That is a facet of an economy losing control.

The price will come down to an extent, speculators can only survive for so long before any bubble pops, however this inflation is driven by both fundamentals, such as China and India consuming more oil, as well as the US government printing money like there is no tomorrow. When bad policy mixes with known bad circumstances the result is a mess.

While the percent of the budget that gas takes is relatively small, it is not true for everyone. Via ucb the NY Times has a heat map for US counties and percent spent on gas bills against income.

The rural areas in the US cannot command large salaries or wages. The jobs are generally not highly skilled and the cost of living is low. Transportation is often a necessity and large vehicles has been the norm for a while now; certainly the last twenty years. The impact of gas inflation is heterogeneous and consequently may take on political dimensions.