Tuesday, April 22, 2008

A Hint of Hyperinflation

Another day, another record high oil price.

Crude oil prices have hit significant new records every day for the last seven trading days. Gasoline prices, already at record levels, went up 4 percent over the weekend, and diesel prices are thirty percent higher than gasoline. You could start to get the impression that petroleum prices go up every day.

This is what hyperinflation looks like. But this is just a “price shock,” a quick jump up in the price of one product or category. In hyperinflation, price increases would continue for week after week and affect more products than not.

Crude oil prices go up, but they also go down, and one day soon the prices will be lower than the day before. The price of gasoline will approach $5 a gallon during this summer’s peak period of demand, but then it will fall again. And so you don’t want to look at the change in oil prices this month and call it a trend. To see the trend, you have to average the ups and downs together.