The Chief Economist’s blog: 95 octane petrol still clearly cheaper than in 2012

Oil prices on the world market have increased sharply since last year, and as a result petrol prices across Finland have increased. Even though the price of petrol has rocketed, the price of 95 octane petrol is still much cheaper than it was less than 10 years ago, when considering the change in the value of money.

Petrol prices increased by tens of percents

In July, approximately 1.70 euros was paid for one litre of 95 octane petrol in Finland. The price has clearly increased since last year, as the lowest price per litre was 1.28 euros in May last year. The increase in prices is the result of the crude oil prices increasing manifold since the low numbers of last spring. At its lowest, the average monthly price of a barrel of oil on the world market was less than 20 dollars. In July, the corresponding price was 74 dollars.

Changes in the value of money make it more difficult to compare prices over time

In the discussion about prices, prices are usually compared in money from different points in time. However, the value of money changes over time. This is also known as inflation. Ten years ago, you could get more for one euro than you can today. When the price comparison takes into account changes in the value of money, the prices can be made comparable in the money from a given time. The purpose of comparing prices with money at a given time is to perceive the price changes through thinking “how much petrol can I get on today's salary compared to how much petrol I could get ten years ago on the salary of that time”.

In today's money, petrol prices have fallen significantly since 2012

In Finland, the last time petrol prices were as high as today was in October 2012. At that time, you had to cough up 1.71 euros for one litre. But there is one problem with this comparison. It does not consider the change in the value of money. By using Statistics Finland's cost-of-living index, we can assess what the price development of petrol looks like when the change in the value of money is removed from the prices.

Although the statistics show that in October 2012 one litre of 95 octane petrol cost about 1.71 euros and slightly more than in July this year, 1.71 euros from 2012 is about 1.86 euros in today's money. Despite the recent increase in prices, petrol is still around 9 percent cheaper than it was almost ten years ago. This can be deduced when the change in the value of money has been taken into account in the price comparison.

Another interesting observation about the petrol price development is that the price per litre of petrol in today's money shows a downward trend since 2012. The petrol price increase may also turn downwards in the coming months, as the oil price on the world market has already started decreasing.

Lasse Corin lasse.corin(at)aktia.fi
Twitter: @lassecorin