Tuesday, January 8, 2008

State of Denial – Gas Prices rise 4% or 34%?

The Department of Energy provides a weekly summary of US retail gas prices. For the US, they report that the gas price for Jan 7, 2007 is $3.109/gal. That is up $0.803 from one year ago. Okay, you do the math that’s a 34.8% increase in gas prices in one year. That sounds about right to me based on local gas prices.

What doesn’t sound right is that today my employer sent out a notice:

The government standard mileage reimbursement rate for business travel has increased to 50.5 cents effective January 1, 2008. The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. That’s an increase of 4.12%. What! How do they figure that?

I did some exploring to find that all IRS mileage reimbursement rates are based on a national study of the costs of operating vehicles, including gas, oil, tires and general maintenance. If we assume that you drive a moderately fuel efficient vehicle getting 20 mpg, your cost per mile just for gas is now 15.5 cents up from 11.5 cents last year. That equates to an extra 4 cents a mile this year while the government is claiming the costs only increased by half of that (2 cents). And that does not include oil, tires and maintenance!

Is the State in Denial of inflation? The data does not appear to support the policy, likewise for the last several years, the CPI inflation numbers have not seemed to be realistic, either. While housing, gas, food, cars and insurance, etc. have been increasing by nearly double digit rates the CPI is continually reported in the range of 3%.

Coupled with the sharp drop in the dollar over the past few months it's obvious that our buying power is much less. Whether the dollar drops or prices increase - it all equals rising inflation.

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