Thursday, August 30, 2012

Gas Prices Around the World: Relative to Income, U.S. Has Some of the Cheapest Gas in the World

A few weeks ago Bloomberg featured the "Highest & Cheapest Gas Prices by Country, where they ranked 60 countries by the average retail gas price at the pump and by the "pain at the pump," which is measured by the percentage of average daily income needed to buy a gallon of gas.  Here are some of the findings:

1. Based on both the retail price of gas and "pain at the pump," Venezuela has the cheapest gas in the world at $0.09 cents per gallon, cheaper even than bottled water.  

2. The world's highest retail gas price is found in Norway, where it would cost almost $400 to fill up the 39-gallon tank of a Chevy Suburban at $10.12 per gallon.  Turkey has the second-highest retail gas price at $9.41, followed by Israel at $9.28 and Hong Kong at $8.61.

3. For "pain at the pump," India has the most expensive gas in the world relative to income, even though the retail price there of $5.44 per gallon is about 50% less than the prices in Norway, Turkey and Israel.  

At $5.44, one gallon of gas in India is 1.43 times more expensive than its $3.81 in per-capita daily income, based on annual per-capita nominal GDP of $1,389 according to the IMF for 2011. Filling up a Chevy Suburban in India would be equivalent to about two months of income, based again on per-capita GDP. 

If gas was that expensive in the U.S., it would cost us about $189 per gallon (based on annual per-capita GDP of $48,387).  So even at $3.81 per gallon, gasoline here is a real bargain.  

4. For "pain at the pump," the U.S. ranks No. 55 out of 60 countries in the latest Bloomberg ranking (where No. 1 is the most expensive/painful and No. 60 is the most affordable/least painful).  Relative to our income, Americans have some of the cheapest gas in the world. 

Update: Another way to express the "pain an the pump" concept of the relative cost of gas around the world is to consider the "time cost of gasoline," measured in the number of minutes, hours, or days of work necessary to earn enough income to purchase one gallon of gasoline at the retail price in various countries.  

Using per-capita GDP as an approximation for income, a typical Indian would have to work about 12.5 hours (or more than a day and-a-half) to earn enough income to buy a gallon of gas at $5.44.  In America, the typical worker would have to work less (fewer?) than 10 minutes (9.45 minutes) to purchase a gallon of gas at $3.81.  

Bottom Line: Measured in time, gasoline in the U.S. is almost 80 times cheaper than in India, and for that we should be thankful.  

26 Comments:

At 8/30/2012 4:27 PM, Blogger Methinks said...

This is very handy. Thank you.

I wonder how long it'll take for the first "if the Kochs weren't hording, the speculators weren't speculating and the greedy oil companies weren't raising their prices, gas would be cheaper. 'Coz we got no problem with supply! gas should be $1.59/gallon, according to professor Needtopublish!" comment.

 
At 8/30/2012 7:05 PM, Blogger Cabodog said...

I personally would like to thank all the Prius owners out there for their conservation efforts. I can only imagine how much more expensive gasoline would be today if it were not for their purchases of small, efficient, hybrid vehicles.

It makes a fill-up for my Suburban almost affordable.

 
At 8/30/2012 7:13 PM, Blogger aorod said...

We don't tax gas like other countries.

 
At 8/30/2012 8:08 PM, Blogger Jon Murphy said...

We don't tax gas like other countries.

Sure we do. There is a federal gas tax, plus individual states have gas taxes.

 
At 8/30/2012 8:14 PM, Blogger Methinks said...

JM, I think maybe he meant our taxes aren't as high so our prices are lower.

 
At 8/30/2012 8:26 PM, Blogger Jon Murphy said...

Oh ok. That makes sense. My bad

 
At 8/30/2012 9:38 PM, Blogger sethstorm said...

Doesn't make the pain any less so. Thank the SUV-driving environmentalists for setting un-American policies.

 
At 8/30/2012 10:17 PM, Blogger D.B. Soupmann said...

Hello and Good Evening:
For those of you who believe that the United States of America has established a reasonably priced domestic Petrol Dollar System (as of today 08-30-2012), just wait until the BRIC Countries (Brazil, Russia, India, China along with Japan and South Africa) are better established in establishing their own domestic Petrol Dollar System to compete with our US domestic Petrol Dollar System. The BRIC domestic Petrol Dollar System will eventually displace the once famous United States domestic Petrol Dollar System by collectively dwarfing our GDP and currency value just as the alliance of the failed Euro Dollar was originally intended to smother the United States’.
Since the close of World War 2 we have been Top Dog while other less developed countries have paid the price; well, as Fate would have it we have been lied to and manipulated for a long enough time for the US to lose our edge by allowing greedy bankers like the Federal Reserve tied to International Banking to urinate and defecate into our collective money pool. The Citizens of the United States have taken their eyes off of the Prize for long enough and have become less competitive due to the apathy of their own un-doing just like when a prize-fighter gets fat and lazy believing he cannot be beat and trusting that his manager will schedule another completive match real soon.
Just wait and see what petrol will cost in the US after the 2012 election and into 2013 after the US dollar continues to fall in value as a result of excessive money printing. It really does not matter who wins the 2012 election, Obama or Romney as both parties are opposite sides of the same coin.
Remember those things that used to be free and pure like Liberty and Water, well guess what is next on the greedy banker marketing agenda…

 
At 8/31/2012 12:35 AM, Blogger Ken said...

Soupmann,

Blaming "greedy bankers" for our woes is like blaming gravity for the collapse of the WTC on 9/11.

 
At 8/31/2012 12:55 AM, Blogger Methinks said...

They say that if you give a chimp enough time with a typewriter he will eventually produce Homer's Iliad.

Sadly, Soupman's comment appears to be the first attempt.

 
At 8/31/2012 4:05 AM, Blogger Benjamin said...

Wipe out the corporate income tax and phase in much higher gasoline taxes?

 
At 8/31/2012 9:00 AM, Blogger morganovich said...

i'm not sure that that is the right way to measure "pain at the pump".

if the price of gasoline were to rise in india, far fewer people would be affected.

americans own more cars and drive them further than any other nation i know of.

we are far more likely to commute to work in a car. (and a bigger one)

might we want to take this into account here?

there is no question that per gallon our gas is pretty cheap, especially relative to income, but i suspect that if we looked at per capita gasoline expenditure as a % of income, it might shift this needle some.

this is likely BECAUSE it's cheap, but it also makes our economy more sensitive to gasoline prices as an aggregate than somewhere where few people drive.

 
At 8/31/2012 9:32 AM, Blogger Methinks said...

Morganovich,

Right. We do that because we can and it increases our set of available options. We can live in the suburbs and drive to work. We are not compelled to live in dirty, crowded cities in order to put food on the table.

We measure welfare by our ability to consume.

Fewer people can afford cars, petrol or even running water (among other things) in India and that's a very high price to pay for a lowered sensitivity to petroleum prices.

I doubt that as a % of income expenditure on fuel is lower in India or elsewhere - especially when you factor in that high fuel prices puts certain options completely out of reach for people who now must submit to the inconveniences of public transport or live in less desirable locations as a result of high fuel prices.

I doubt you disagree?

 
At 8/31/2012 10:05 AM, Blogger morganovich said...

methinks-

i'm actually not sure.

if you look at overall expenditure on gasoline vs overall income, i'm not sure india might not be lower. if far fewer people consume any (as they have no car etc) then as an economy, it might be lower than the us.

if you own a car in india, yes, you almost certainly spend more of your income on gasoline than an american (unless you barely drive at all), but 89% of american households own a car. in india, i think it's around 10%.

for the economy as a whole, this is going to skew things quite a bit.

i was mostly trying to outline why the "pain at the pump" ratio might not be a good indicator of how sensitive an economy is changes in the price of gasoline.

if such a hike affects 9 times the portion of the population in the us as in india, we might still have much greater impact here.

i'm not sure i follow the last part of your argument.

if high fuel prices (and unaffordable cars etc) put owning a car out of reach, why would that make the % of overall income spent on gas higher? that seems like it would drive it lower. you live near work, you take the bus, etc and so you use less gasoline and it's % of your spending drops.

am i misunderstanding you somehow?

 
At 8/31/2012 11:00 AM, Blogger Jon Murphy said...

Probably the best way to gauge the pain at the pump is the price elasticity of demand (in technical terms, Price elasticity is the % change in quantity divided by the % change in price. If the absolute value of the number is 1, then the good has perfect elasticity, or consumers are very sensitive to changes in price. If the absolute value of the number is 0, then the good has perfect inelasticity, or consumers are not sensitive at all to price changes).

 
At 8/31/2012 11:29 AM, Blogger morganovich said...

jon-

why is that the best way?

in the short run, demand in the us is quite inelastic. price goes up 5%, but you still need to drive to work. it may impact you other spending, but you have no real choice. long run, you might move so you can take public transport or buy a ore fuel efficient car, but short run, if you gotta get to work, you gotta get to work.

on top of the difficulty in deciding "which p e of d", i'm not sure it tells the whole picture.

if a society uses a lot more gasoline, then such elasticities impact far more people. it seems like you first need to know what % of overall income is spent on gasoline so you have a base figure to which to apply elasticities, no?

 
At 8/31/2012 12:14 PM, Blogger spotteddog said...

"Relative to our income, Americans have some of the cheapest gas in the world."
Maybe income is a function of gas prices.

 
At 8/31/2012 1:20 PM, Blogger Jon Murphy said...

Morganovich-

My thinking is that "pain at the pump" is a short term thing. People will adapt to higher/lower prices in the long term.

By comparing relative price elasticity, I am thinking we can get a different feel on how different people react to price increases in gasoline.

 
At 8/31/2012 1:24 PM, Blogger Mark J. Perry said...

Maybe instead of calling it "pain at the pump," they could have called it the "time cost of gasoline," measured in the number of hours (or days) of work to earn enough money to purchase one gallon of gas.

 
At 8/31/2012 1:40 PM, Blogger morganovich said...

mark-

i think "time cost of gasoline" is a much better descriptor.

jon-

i'm not sure comparing peod for gas in countries would work that way. there are too many other variables.

in indai, 10% of families have cars. they are likely the wealthy ones. changes in the price of gas are not likely to change their habits much (gas price does not affect my behavior in any way really. it would need to double from here to get me even thinking about buying somehting low horsepower).

few indians are car commuters.

the same is true in place like denmark with its 100% new car tax rate.

these things are going to have big effects on elasticity.

in terms of gauging the pain felt in a country from higher gas prices, i think we might be better off looking at overall spending on gasoline as a % of income. we could use elasticities to determine how strongly a nation would react to a move, but to actually see how much pain is doled out, i think we need some base of usage and importance to the economy as well.

 
At 8/31/2012 1:44 PM, Blogger morganovich said...

jon-

i may have a better way to explain what i am trying to get at.

let's imagine 2 countries. in A only the richest 10% have cars. in B, 90% have cars and as it is non population dense country, most drive to work and public transport is limited.

we would expect both to have low short term pe of d to a gas hike.

the rich folks just do not care as it is not a meaningful tradeoff for them. the commuters gotta get to work, so they pay up and drive, even if it hurts.

in the former, there is little "pain" felt, in the latter, perhaps quite a bit. but there would be no way to tell them apart just using elasticity.

does that make sense?

 
At 8/31/2012 1:58 PM, Blogger Methinks said...

Morganovich,

You can't ignore the part of the population that can't allow themselves the luxury of gasoline because the price is too high for them.

That's like jacking up the price of petrol in the United States so that the price of driving to work exceeds the amount earned and then claim that incremental price increases don't hurt most Americans because most don't drive anyway.

Americans would be fundamentally poorer if they couldn't drive. They would have to make undesirable changes to their lives in order to survive without petrol.

Indians feel much more pain at the pump because it costs them so much more to attain the luxury of mobility that petrol could afford them.

It is a mistake to assume that because most Indians cannot afford to buy it in the first place, they are unaffected by incremental changes in the price of the good. Even if they can't afford it by a long shot, an increase in price makes it that much more unaffordable and makes them that much poorer, while a decrease in price makes it that much more affordable and them that much richer. Of course, you could hold prices constant and change income. The important thing is how much we can consume of a wide variety of goods and people who are at present unable to consume the good in question cannot be scraped out of your data set.

A poor Indian who cannot afford (in the absolute sense - hasn't enough to exchange for it)a gallon of gasoline feels far more pain than an American who will be forced to delay the purchase of an iphone or buy less beer to be able to drive the Escalade from his comfy suburban home to his job in the city.

 
At 8/31/2012 2:00 PM, Blogger Methinks said...

That's like jacking up the price of petrol in the United States so that the price of driving to work exceeds the amount earned and then claim that incremental price increases don't hurt most Americans because most don't drive anyway.

For the sake of clarity, such an event would render most Americans unable to drive.

 
At 8/31/2012 2:08 PM, Blogger Methinks said...

I like "time cost of gasoline" much better.

 
At 8/31/2012 2:35 PM, Blogger juandos said...

"in the short run, demand in the us is quite inelastic. price goes up 5%, but you still need to drive to work"...

Well actually morganovich from a strictly anecdotal point of view I think demand is quite a bit more elastic than you make out...

Then again it depends on where you live I suppose...

Back when the price of gasoline first started to approach $3.00/gal locally I noticed a whole lot of people gave up a lot (but not all) of their leisure driving...

This had a pretty severe though not immediate financcial impact on small businesses that in large part depended on these leisure drivers...

Locally gasoline is starting to approach $4.00/gal and I expect to be hearing about another round of weeding out of these small businesses...

 
At 8/31/2012 3:19 PM, Blogger Jon Murphy said...

Morganovich-

I see what you are saying, but that is exactly my point.

The relative elasticity of demand for the rich country would be lower (closer to 0) than for the commuter country. Because of that, the commuter country will feel greater pain at the pump. They will have to limit convince trips, do everything all at once. This will reduce the quantity of gasoline demanded, thus leading to a higher price elasticity.

I agree with you that there are some level of gasoline demanded that will remain largely constant (commuter costs, for example). But what you will see a decline in is luxury driving. So, the quantity demanded will drop closer to that base level of demand.

 

Post a Comment

Links to this post:

Create a Link

<< Home