CPI of Transportation and a Relevant Discussion on Gas Prices

The Consumer Price Index, in simple terms, measures the change in prices in a basket of goods and services that consumers buy on a regular basis. Even simpler, it measures how inflation affects consumers’ daily expenditures. To dive deeper into understanding how the CPI is calculated, we see that a base year is chosen (more or less arbitrarily from my understanding) and that year is ascribed a value of 100. Then the indexes for other years measure how much the prices for a certain basket of goods change from the base year. The Consumer Price Index for transportation, then, measures the changes in the price of transportation-related goods and services, such as fuel, etc. This is an important indicator to study because we use transportation every day to go to work, go to restaurants, and do leisure activities. the CPI of transportation would affect people’s ability to perform daily activities. It also impacts businesses that heavily rely on transportation.

Table 1. Consumer Price Indexes for all Urban Consumers, Transportation Related Goods and Services: 2004 to 2018 with Base Year December 1997

According to the Bureau of Transportation Statistics, this basket of consumer transportation products includes private transportation goods and services like purchases of new and old vehicles, gasoline and other motor fuels, and other smaller transportation-related fees. It also includes public transportation prices such as mass transit, intercity, and intracity transportation, and other modes of transportation, like planes, ships, and trains.

Table 2. United States CPI Transportation

In this 25-year graph that outlines the ups and downs of the United States CPI for transportation, we can see that although the CPI fluctuates regularly, there is an upward trend. This shows that similar to the prices of the overall goods and services in the United States, transportation costs are indeed also subject to steady inflation over the years. We see that there is a dip near the 2008 year, which is not surprising as recessions often lead to deflation. In recent years, around 2020, we see a drop in transportation prices. This is mostly caused by the pandemic and quarantine. Because transportation was not encouraged during the pandemic, there was less demand for transportation, thus pushing the prices down. Now, right after the pandemic, as people started going out more, demand increased and transportation prices returned to normal. But wait a minute…the transportation CPI kept going up and up and up. The reason was Russia’s invasion of Ukraine. Or the sharp rise in transportation CPI reflects the supply shock of gasoline as the global market (mainly Europe) stopped buying gasoline from Russian gasoline, one of the largest gasoline producers. Since the boycotts affect supply on a global scale, US gas prices also go up, subsequently, the cost of transportation follows. Another supply chain problem that began in 2020 and is also affecting the CPI of transportation is the global chip shortage or also known as the semiconductor shortage. Cars use chips, so fewer new cars could be produced. Lower supply, thus higher prices.

Table 3. United States CPI of Transportation and United States Gas Prices Comparison

Let’s explore the relationship between the CPI of transportation and gas prices a little more. When we look at the CPI of transportation and gasoline prices overlapped, their trajectory almost exactly coincides. This implies that the CPI of transportation, although including the costs of buying old and new cars, car insurance, parking fees, etc, the volatility of CPI transportation is largely impacted by changing gasoline prices. Of course, this recent increase in CPI of transportation is not exclusive to transportation. The rise in the CPI of transportation is also a reflection of the recent inflation the U.S. is experiencing.

It is easy to solely focus on the impacts of this change in our everyday lives because the effects are so blatant. Rising gasoline prices double the amount every consumer pays to fill up their tank. As mentioned before, the rising cost of transportation also heavily affected businesses that rely on transportation. For example airlines, but that is already reflected in the CPI of transportation. Most businesses, even if they don’t heavily rely on transportation require shipping products around the country. For example, Amazon, which is a transportation-heavy business, relies on trucks to deliver its products. Or produce, although not a heavily transportation-heavy business, also do rely on trucks to deliver their produce to supermarkets all over the world. When production costs rise due to transportation costs rising, the prices of these products also rise. So rising transportation costs not only affect transportation-focused industries and their subsequent products but can also push the prices of all products up.

It’s interesting that we’ve explored three different and major changes in the CPI of transportation and the reasons for these dips and rises are vastly different. It really shows the unpredictability of economics and how hard it is to take into account every possible change in something that may seem unrelated but will ultimately affect a certain thing.

Related posts:

In conversations involving government, academia, and industry, and civil society, there is much talk surrounding the democratization of the latest technological developments, including artificial…

bibit black sapote tanaman buah jumbo sawo hitam Blacksapote Jumbo Warna buah unik, tekstur lembut dan citarasa layaknya puding coklat. Tinggi tanaman : 15–35cm Asal dari biji Estimasi berbuah dalam…

The beach is lined with broken shells. Once the protective homes and exoskeletons of mollusks that resided inside, they now carpet the coastline in shattered fragments. Having been hammered by the…