A fair price for motor fuel in the United States
Ivan O. Kitov, Oleg I. Kitov
In the United States, there exist robust linear trends in the differences between headline (or core) CPI and price indices for individual subcategories of goods and services such as energy, food, housing, etc. Chiefly these differences can be represented by a piece-wise straight line. The periods of the transition from one trend to another are characterized by an elevated volatility. The difference between the core CPI and the price index for motor fuel can be also accurately approximated by several straight lines. In 2008, the negative trend was replaced with a positive one, and thus, a very high volatility in motor fuel price was observed, with an extension into 2009. The change in the trend was accompanied by an “overshoot” in the price for motor oil, which dropped much lower than that expected from the new trend. Therefore, the difference has to return to the new positive trend in 2009. During the recovery period, the index for motor fuel will grow by 90 units or 50%. The price for motor fuel in the US will also grow by 50% by the end of 2009. Oil price is expected to rise by ~50% as well, from its current value of ~$50 per barrel.
Therefore, the fair price is not a fixed value but a linear function of time.
Key words: CPI, motor fuel price, prediction, US JEL Classification: E31, E37
Fuel price changes under consideration
November 21, 2008
China is considering ways to revise its fuel pricing system, including a new fuel tax and fewer price controls, in response to lower oil prices, the Financial Times reported. The National Development and Reform Commission (NDRC) said the potential reforms would encourage more efficient use of energy and greater use of smaller cars. The NDRC gave no further details of the reforms and did not say when they would occur. China has long considered changing... [continues]
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