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A fair price for motor fuel in the United States

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Author Info
Kitov, Ivan
Kitov, Oleg

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Abstract

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15039.

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Date of creation: 05 May 2009
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Handle: RePEc:pra:mprapa:15039

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Related research
Keywords: CPI; motor fuel price; prediction; US;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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References listed on IDEAS
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  1. Ivan Kitov & Oleg Kitov, 2009. "Unemployment and inflation in Western Europe: solution by the boundary element method," Quantitative Finance Papers 0903.5064, arXiv.org. [Downloadable!]
    Other versions:
  2. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Germany," MPRA Paper 5088, University Library of Munich, Germany. [Downloadable!]
  3. Kitov, Ivan & Kitov, Oleg, 2008. "Long-term linear trends in consumer price indices," MPRA Paper 6900, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Japan," MPRA Paper 5464, University Library of Munich, Germany. [Downloadable!]
  5. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2007. "Inflation as a function of labor force change rate: cointegration test for the USA," MPRA Paper 2734, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany. [Downloadable!]
  7. Ivan, Kitov, 2006. "Exact prediction of inflation in the USA," MPRA Paper 2735, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-11-8.

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