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The price of gas at the pump is not important?
Old 07-19-2008, 09:22 AM   #1
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The price of gas at the pump is not important?

This op-ed piece (http://www.nytimes.com/2008/07/19/op...ml?ref=opinion) brings up an important point.

For instance, I received our Utility bill (Xcel Energy) for the month of June and found that it was almost 20% greater than the same period last year.

2007 - $169.62
2008 - $202.57

$32.95 Greater (19.5%)

Yet, I used less energy.

2007
Gas - 14 Therms
Electricity - 1,629 Kilowatt Hours

2008
Gas - 13 Therms
Electricity - 1,620 Kilowatt Hours

Gas increased from $19.12 to $28.08 (32%)
Electricity increased from $150.50 to $174.49 (16%)

I know this all oil related but...
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Old 07-19-2008, 09:40 AM   #2
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Quote:
Originally Posted by RonBoyd View Post
.2007
Gas - 14 Therms
Electricity - 1,629 Kilowatt Hours

2008
Gas - 13 Therms
Electricity - 1,620 Kilowatt Hours
At least you're consistent...

Looking at my bill this year and last, it looks like our electric rates went from about 9.5 cents to 11.5 cents per kwh over the last year.
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Old 07-19-2008, 10:01 AM   #3
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I'm sure that economists have done studies on how people percieve inflation (judging from this "Dan Ariely, a professor of behavioral economics", the guy who wrote the article probably did some of the studies). IIRC, things that we
- buy frequently,
- have little variation in quality, and
- we consider necessities,
get extra mental space when we think about prices. Gasoline hits on all of these.

However, I have to wonder about this: "Looking back at my family’s expenses over the past few years, I see big increases in our health care costs and in how much we pay for food. The rise in what we spend on gas is not nearly as extreme as our increases in categories like electricity and telephone"

When I look at the BLS numbers over the last 12 months, I see:
Gasoline is up 32.8%
Medical care 4.0%
Food at home 6.1%
Electricity and Natural Gas combined 10.0%
Telephone 2.2%

Maybe if I looked "over the past few years" I'd see something different, but it seems unlikely.

(Note: "Fuel Oil" tops the list over 12 months at 61.2%)

Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U. S. City Average, by expenditure category and commodity and service group
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Old 07-19-2008, 11:01 AM   #4
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I'm sure that economists have done studies on how people percieve inflation (judging from this "Dan Ariely, a professor of behavioral economics", the guy who wrote the article probably did some of the studies). IIRC, things that we
- buy frequently,
- have little variation in quality, and
- we consider necessities,
get extra mental space when we think about prices. Gasoline hits on all of these.

However, I have to wonder about this: "Looking back at my family’s expenses over the past few years, I see big increases in our health care costs and in how much we pay for food. The rise in what we spend on gas is not nearly as extreme as our increases in categories like electricity and telephone"

When I look at the BLS numbers over the last 12 months, I see:
Gasoline is up 32.8%
Medical care 4.0%
Food at home 6.1%
Electricity and Natural Gas combined 10.0%
Telephone 2.2%

Maybe if I looked "over the past few years" I'd see something different, but it seems unlikely.

(Note: "Fuel Oil" tops the list over 12 months at 61.2%)

Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U. S. City Average, by expenditure category and commodity and service group
Medical Care up 4.0%, sure. Then why did my premiums just go up 12% again this year after 10% plus for the last five years? Eventually it will be 100% of income. You have to stop looking at those rigged numbers.
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Old 07-19-2008, 11:47 AM   #5
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Standing there watching the price scroll up does give you time to think and fume about the price, but you pretty much do the same thing as groceries are scanned at the checkout counter.

The part about buying multiple units is really stupid. No normal family is going to go through 15 gallons of milk in a week, but 15 gallons of gas is not unusual.

The piece also ignores the effect the price of gas has on food and many, many other things.

However, the conclusion about not being stupid about driving a long way to get cheaper gas or taking a huge hit to get a more fuel efficient car is a good one. Maybe he could've gotten to that point in a better way.
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Old 07-19-2008, 11:50 AM   #6
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The BLS is an average (median) numbers with lots of strange juggling. It is best to track personal expenses and use your own experience. On your medical care plan, it sounds like you belong to a higher risk group to be getting such big increases.
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Old 07-19-2008, 07:44 PM   #7
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The Kaiser Foundation doesn't have the 2008 vs. 2007 number up yet. But this graph suggests it will be less than 12%.
Average Percentage Increase in Health Insurance Premiums Compared to Other Indicators, 1988-2007 - Kaiser Slides

Remember that the cost of health insurance involves both the changes in prices and the change in usage. The CPI only includes the change in price.
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Old 07-19-2008, 07:52 PM   #8
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The Kaiser Foundation doesn't have the 2008 vs. 2007 number up yet. But this graph suggests it will be less than 12%.
Average Percentage Increase in Health Insurance Premiums Compared to Other Indicators, 1988-2007 - Kaiser Slides

Remember that the cost of health insurance involves both the changes in prices and the change in usage. The CPI only includes the change in price.
I have UHC. I looked at your chart, where the heck was that taken? I haven't seen less than 10% for years. I noticed the "*" on all the recent lower %'s, does that mean after BLS fudging?

Yes, I do remember it includes both, but I didn't use my insurance coverage at all and my premiums still went up 12%. Maybe if I had used it more they would have cut me some slack.
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Old 07-19-2008, 08:03 PM   #9
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Originally Posted by kcowan View Post
The BLS is an average (median) numbers with lots of strange juggling. It is best to track personal expenses and use your own experience. On your medical care plan, it sounds like you belong to a higher risk group to be getting such big increases.
I don't know about a high risk group, a small company of 20 about employees.
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Old 07-19-2008, 08:11 PM   #10
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I have UHC. I looked at your chart, where the heck was that taken? I haven't seen less than 10% for years. I noticed the "*" on all the recent lower %'s, does that mean after BLS fudging?

Yes, I do remember it includes both, but I didn't use my insurance coverage at all and my premiums still went up 12%. Maybe if I had used it more they would have cut me some slack.
Read the footnotes. These numbers are from Kaiser's own surveys, not from the BLS.

"usage" means average usage for all insured, not for your family specifically.
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Old 07-19-2008, 08:17 PM   #11
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Read the footnotes. These numbers are from Kaiser's own surveys, not from the BLS.

"usage" means average usage for all insured, not for your family specifically.
I know, I know. But after your factual information my premiums still went up 12% to around $1350 for a family with a 20% copays and $1k deductible each. My medical care did not go up just 4% and I'm not even starting on the dental bills yet. 4% would have been GREAT. Is there no mercy?
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Old 07-20-2008, 11:40 AM   #12
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The price of gas or anything else was never important to me. When was the price of gas low enough to waste it? If you weren't/aren't wasting it (or anything else)to begin with, there is nothing you can do about it. Learn the difference between needs and wants. Live simple and appreciate everything.
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Old 07-20-2008, 02:02 PM   #13
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I've been thinking about price increases in commonly-used things, too, and I was wondering why I haven't been more concerned for our budget and ER plans. I realized that I worry less about the actual price than about how much it costs me. So, I don't really care how much gas costs -- what I care about is how much I spend for gas in any given time period.

Somebody is going to point out that these two things are inextricably linked, and they are, but not as much as we're being led to believe. For example, I need gas in order to run my car, but I don't need to run my car as much as I do. Gas prices go up, I drive my car less. I need electricity to heat my house, but I can control how I heat it, how well-insulated it is, and how many rooms I choose to heat, or how many sweaters I choose to wear.

Electricity rates are going up for me, too, but if I use less electricity then the total impact to my bottom line will be less than the rate increase would lead me to believe.

So, a lot of the things I consider to be "essential" are really, at heart, still "discretionary" purchases. Anyone else out there thinking this way?
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Old 07-20-2008, 02:36 PM   #14
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I've been thinking about price increases in commonly-used things, too, and I was wondering why I haven't been more concerned for our budget and ER plans. I realized that I worry less about the actual price than about how much it costs me. So, I don't really care how much gas costs -- what I care about is how much I spend for gas in any given time period.

Somebody is going to point out that these two things are inextricably linked, and they are, but not as much as we're being led to believe. For example, I need gas in order to run my car, but I don't need to run my car as much as I do. Gas prices go up, I drive my car less. I need electricity to heat my house, but I can control how I heat it, how well-insulated it is, and how many rooms I choose to heat, or how many sweaters I choose to wear.

Electricity rates are going up for me, too, but if I use less electricity then the total impact to my bottom line will be less than the rate increase would lead me to believe.

So, a lot of the things I consider to be "essential" are really, at heart, still "discretionary" purchases. Anyone else out there thinking this way?
I do.

A few examples:
1) Despite the price of gas going up a lot since last year, we are spending slightly less on gas this year than we did last year. I can't really figure out why that is because it doesn't feel like we are consciously cutting back on our driving, but I guess we are more careful about not wasting gas.
2) Despite the price of electricity going up 25% since 2005, our electric bill is actually lower today than it was then. We installed a more energy-efficient A/C unit, a programmable thermostat and replaced all incandescent bulbs with those energy efficient ones.

But when I write things like that people say that I am lowering my personal inflation rate by cutting back on my lifestyle. I don't feel like I am depriving myself of anything, just being more aware of not wasting money that does not need to be wasted.

And we are now reaching some limits. I don't see how I can keep lowering my electric bill further without incurring major expenses that may not make a lot of sense, right now, economically speaking (like going solar). And I can reduce my driving but at some point I still have to go to work. Sure I could ride my bike to go to work and the grocery store but THAT would feel like a lifestyle cutback. So at some point price increases will catch up with us.
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Old 07-20-2008, 02:42 PM   #15
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But when I write things like that people say that I am lowering my personal inflation rate by cutting back on my lifestyle. I don't feel like I am depriving myself of anything, just being more aware of not wasting money that does not need to be wasted.
I don't think that cutting back on a lifestyle is necessarily bad, especially when the lifestyle is inflated. I think that I live an inflated lifestyle because it's convenient and not financially destructive. I eat meat on a regular basis, I drive my car for convenience's sake, I don't really think twice about a $4 latte if I want one. So if someone accuses me of "cutting back" maybe it's time I told them that was a good thing. The essence of the FIRE dream is that you reduce now for payoff later -- scaling back a lifestyle is consistent with this, and I think it's one of the most powerful methods of dealing with inflation on a personal level.

I agree with you that there are minimum levels below which we can't easily voluntarily go, at least economically (like your solar example), but I haven't gotten there yet on virtually any part of our budget. Hmmm... maybe that's my new challenge -- how low can I go?

Cue the limbo music...
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Old 07-20-2008, 05:42 PM   #16
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I've been thinking about price increases in commonly-used things, too, and I was wondering why I haven't been more concerned for our budget and ER plans. I realized that I worry less about the actual price than about how much it costs me. So, I don't really care how much gas costs -- what I care about is how much I spend for gas in any given time period.

Somebody is going to point out that these two things are inextricably linked, and they are, but not as much as we're being led to believe. For example, I need gas in order to run my car, but I don't need to run my car as much as I do. Gas prices go up, I drive my car less. I need electricity to heat my house, but I can control how I heat it, how well-insulated it is, and how many rooms I choose to heat, or how many sweaters I choose to wear.

Electricity rates are going up for me, too, but if I use less electricity then the total impact to my bottom line will be less than the rate increase would lead me to believe.

So, a lot of the things I consider to be "essential" are really, at heart, still "discretionary" purchases. Anyone else out there thinking this way?
I think I know what you're saying.

It's handy to talk about two categories - "needs vs. wants", but in fact there's a continuum. I feel that I can slide up and down it with reasonable ease given my current situation.

It isn't easy because we are "rich" compared to other 21st century Americans. But I remember how we lived when I was a kid, so my baseline "real needs" is pretty low.
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Old 07-20-2008, 09:31 PM   #17
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Just thought I would add to the Health Care CPI info. Here in good ole Michigan Blue Cross just got the go ahead for an average increase of 15.2% on seven different policies. They wanted 23%.

My policy (not a high risk) went up 11% last year - I can hardly wait!!!!!!!!
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Old 07-20-2008, 09:39 PM   #18
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Just thought I would add to the Health Care CPI info. Here in good ole Michigan Blue Cross just got the go ahead for an average increase of 15.2% on seven different policies. They wanted 23%.

My policy (not a high risk) went up 11% last year - I can hardly wait!!!!!!!!
Keep beating that drum! Kaiser stats must have been produced for public consumption on Mars by the BLS.
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Old 07-21-2008, 05:15 AM   #19
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and then, right on cue, comes this morning's news:

"DENVER (AP) ― Natural gas users served by Xcel Energy will pay 19 percent more next month if the Colorado Public Utilities Commission approves a rate hike request.
The state's largest energy provider filed the request Friday.
It reflects continuing increases in energy prices and is 126 percent higher than consumers paid last August."

How wonderful.
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Old 07-21-2008, 07:44 PM   #20
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and then, right on cue, comes this morning's news:

"DENVER (AP) ― Natural gas users served by Xcel Energy will pay 19 percent more next month if the Colorado Public Utilities Commission approves a rate hike request.
The state's largest energy provider filed the request Friday.
It reflects continuing increases in energy prices and is 126 percent higher than consumers paid last August."

How wonderful.
The BLS doesn't count things that can be made with farts.
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