I have read various reports today about increases in petrol prices and an apparent consequential decrease in fuel consumption. It seems set to become an issue at the election. My own views on this are simple – petrol is nowhere near expensive enough. Such a view will make me popular with no one (aside from my secret circle of ‘Green’ friends) and that is why I am (among other reasons) not a politician. But I contend that I am right and I can back up my view with real data. I can also say what I mean by ‘expensive enough’.
What is ‘expensive’?
If transport fuel (diesel and petrol) was really ‘expensive’ in some absolute sense, then changes in price would be reflected in changes in consumption. Perusing the UK data on this I find very little evidence that even quite dramatic price changes have caused even a minor tremor in consumption. Let’s look at the UK data on prices and consumption available from the UK’s statistics hub.
The data on prices is downloadable from the Department for Energy and Climate Change in an Excel spreadsheet with weekly data from 2003. The data looks something like this:
The price data shows a general trend rise of about 8% per annum since 2003 and a significant peak in 2008. Did this affect fuel consumption? This data is available form Her Majesty’s Customs and Excise who keenly count each litre of fuel dispensed. The data for the last 10 years looks like this:
The data are annualised and so do not show any detailed response to the weekly data on fuel price. However it is clear that the above inflation trend rise in fuel prices has not caused a trend decrease in fuel consumption. Notice in particular the absence of any decline in consuption in 2008 when fuel prices peaked. There is evidence of a fall in fuel consumption in the last year or two, but this is not because of fuel prices – this is (presumably) because of the recession.
When transport fuel prices cause people to change habits and use less, then fuel will be in some objective sense be ‘expensive’. We are not yet close. Personally I think fuel prices will need to practically double before people will change their habits. It is important to understand that the ‘habits’ are not vices. People have made rational choices about how far to live from their place of work based on the cost of houses and the price of fuel. When this balance changes then people will make different decisions. Similarly business have made decisions about locations of factories and warehouses based on similar considerations. I cannot stress enough that despite the fact that I do want fuel prices to rise, I sympathise with the people who will pay the price. They are not paying the price for their own poor choices, but for their own rational responses to a market that has been left to its own devices.