Gasoline Prices Moving Downward

As of Monday, 12/27, from EIA via FRED:

Source: Energy Information Administration via FRED, accessed 12/28/2021.

Gasoline prices (all formulations) are now down about 4% since November 8th reading.

What’s the impact on the CPI-all urban? Below I show a mechanical decomposition of the direct impact on the CPI (using log approximations, and the December 2020 weights). Notice that fuel costs embodied in goods prices are not included.

Figure 1: CPI-all urban month-on-month annualized inflation rate (black line), direct contribution from gasoline prices (blue bar), contribution from all other sources (brown bar), all seasonally adjusted. Rates calculated using log differences, and December 2020 weights. NBER defined recession dates peak-to-trough shaded gray. Source: BLS, NBER, and author’s calculations.

Going forward into December’s numbers, gasoline prices should account for a declining share of total inflation.

Gasoline futures prices as of 12/28 are in backwardation. Chinn and Coibion (2014) note that gasoline futures are unbiased predictors of future gasoline prices out to the 6 month horizon, and outpredict a random walk (and outpredict a simple ARIMA(1,1,1).