Mass media today are losing their shit over the February inflation report which shows prices up by 7.9%, the largest rise since 1982. And of course conservatives will blame the Biden administration for causing this cost of living increase.

Which is stupid, if you just think about it (therein lies the problem, not too many people think about it). Prices have been rising for at least two years because of supply chain problems. Cars, construction materials, electronics all became scarce, and scarcity (supply) leads to higher prices (demand) for those items that can be purchased. That’s a pandemic issue, not a political one.

Then we have the Russia-Ukraine war and its impact on oil supply. This compounds the inflationary impact of supply chain problems. And somehow, people think that the government has control of the price of oil and gasoline. This simply isn’t true.

In a nutshell, oil companies set the price of oil by carefully regulating supply. The cost of refining and distributing gas (and other products) is added to the base price of oil, then government adds taxes, and that sets the price of gasoline at the retail outlets. Oil companies ALWAYS use any possible disruption in supply (like the Ukraine war) to immediately raise the retail price of gasoline, and that increase drops immediately to their bottom line. Today’s high price has nothing to do with their actual cost of delivering the product – their “concern” about future oil supply gives them a thin excuse to raise prices now, taking huge unearned profits.

Heather Cox Richardson explains it quite well in her March 8 essay:

The government has little to do with the cost of gasoline. Since our oil companies are privately owned, the cost of oil goes up and down according to supply and demand. That, in turn, can depend on disruptions to crude oil supplies, refinery operations, or pipeline problems, or even on what people think will be future demands. Last year, in the midst of the pandemic, the economic recession meant there was little demand for oil, and prices were very low. That meant producers reduced production, and they have not yet fully ramped it up again.

Even before Russia invaded Ukraine, the booming U.S. economy meant increased demand for oil and thus increased prices. U.S. companies increased their production, but perhaps not enough to address the imbalance between supply and demand that would address soaring gasoline prices. And in that gap, oil companies made huge profits.

On February 20, 2022, Tom Wilson of Financial Times reported that the seven top oil companies, including BP, Shell, ExxonMobil, and Chevron, would return a near-record $38 to $41 billion to shareholders through stock buybacks, after distributing $50 billion in dividends. The Wall Street Journal in January noted, “While that is good for investors in the company, there are mounting concerns that there isn’t enough investment in new fossil-fuel supply to meet growing demand.”

Low supplies are driving prices up, but Republicans are trying to turn those high gas prices into a culture war…

And of course Democrats are clueless about how to fight back on the conservatives relentless messaging about something like this.

I paid $6.50 per gallon for gasoline yesterday, and it won’t surprise me if it ends up being $8.00 per gallon in Socal. That will inconvenience me, but that’s about all. I know it will be a huge blow for those living paycheck to paycheck, and for their sake I hope that some relief (of course from the government, never from the oil companies) can be delivered.

I lived through the inflation in 1982, and it wasn’t fun. I was one of those living paycheck to paycheck way back then. I had a home mortgage rate of 18%, for example. Unthinkable today. But we got through it back then, and we will again.

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