In Which Currency is Crude Oil Presently Cheapest?

The Crude Oil Price Peeked in 2008 but how Expensive is it now in World Currencies

Just recently there has been a lot of talk about the price, plus the increasing price of petrol and diesel (which our US brethren refer to as "gas").  So I thought that I’ll look at the crude oil price over the last couple of years.  There are many benchmarks for the crude oil price, such as the West Texas Intermediate (WTI) and Dubai Crude, but I’m going to use the Brent Crude spot price.  The nominal Brent Crude oil price peaked on 3rd July 2008 at $143.95 (US Dollars) per barrel, before rapidly falling during the “credit crunch“ after the collapse of the US Investment bank Lehman Brothers Holdings Inc.  The nominal Brent Crude price bottomed on 26th December 2008 at $33.73 per barrel.  Since that time the prices have increased and by the 1st March 2012 the price was $125.76 per barrel, which is 87% of the peak price on 3rd July 2008.  However unless you live in the US, buy all your goods and get paid in US Dollars, the Dollar price of crude oil doesn’t mean much as your reference will be another currency.  So I’ve converted the crude oil price since 2008 to determine the price in several world currencies.  The Brent Crude Oil price since 2008 in US Dollars, UK Pounds and Euros is shown in the chart below.

Daily Brent Crude Oil Price since 2008 in US Dollars, Pounds Sterling and Euros per Barrel.

The data for the historic daily Brent Crude Oil spot price since 2008 came from the US Energy Information Administration, the and the daily international exchange rates forUS Dollars came from the Board of Governors of the Federal Reserve System, Washington, DC. 

From the chart above you can see that the oil price in UK Pounds and Euros (EUR) at the time of the peak on 3rd July 2008 were £72.61 and EUR 91.64 per barrel respectively.  Furthermore their receptive price on 1st March 2012 was £78.83 and EUR 94.41.  As it can be seen these vales are higher than those see at the peak price on 3rd July 2008.  Normalizing the crude oil priced in the different world currencies by indexing the prices to the value on 3rd July 2008 (i.e. by making the value on that date = 100) highlights the comparative price changes between those currencies over time.  The chart below shoes the index daily Brent Crude Oil price since 2008 in US Dollars, GB Pounds, Euros, Japanese Yen and Chinese Yuan.  Its interesting to note that compared to the 2008 peak price, the oil price at the beginning of March 2012 in Chinese Yuan and Japanese Yen is approximately 78% and 65% respectively.  Compare this to approximately 85% for the price in US Dollars, quite a difference!

Daily Brent Crude Oil Price since 2008 - Indexed to 3 July 2008 - in US Dollars, Pounds Sterling, Euros, Japanese Yen and Chinese Yuan per Barrel. 

From the chart above you can clearly see that the crude oil priced in Pounds Sterling and Euro were by the begging of March 2008, higher than at the July 2008 peak (by 8% and 3% respectively).  Below is the same index chart of the Daily Brent Oil Price but for a set of emerging market currencies (Indian Rupees, Brazilian Reals, Thai Baht and Japanese Yen).  

Daily Brent Crude Oil Price since 2008 - Indexed to 3 July 2008 - in US Dollars, Japanese Yen, Indian Rupees, Brazilian Reals, Thai Baht per Barrel .

The worrying thing for the UK and Euro Zone is that the crude oil price has been constantly high (at closet to 100% for the UK and 90% for the Euro Zone) compared to the 2008 peak oil price since the beginning of 2011.  For the rest of the world oil prices started high at the beginning of 2011 and then fell back.  It was only since February 2012 for some of the other world currencies that the oil prices started to rise to relatively high prices seen at the 2008 peak (examples are the Indian Rupee and US Dollar).

Below is a table displaying the Brent Crude Oil Price in a number of world currencies at the July 2008 peek, at the beginning of March 2012 and the index price at the beginning of March 2012.  The currencies have been ordered such that the one with the heights indexed oil price is first and the lowest is last.  The US Dollar row is highlighted by being bold to illustrates in which currencies the oil price index are larger or lower compared to the US Dollar price. 

Table of Brent Crude Oil Price per Barrel in a Number of World Currencies       

Currency	Brent Oil Price on 3rd July 2008	Brent Oil Price on 1st March 2012	Index Price on 1 March 2012 (3rd July 2008 = 100)
Pounds Sterling (£)	72.61	78.83	108.6
Euro (EUR)	91.64	94.41	103.0
Indian Rupees	6,214.32	6,179.85	99.4
Swedish Kronor	861.92	832.61	96.6
Norwegian Kroner	733.53	701.74	95.7
South Korean Won	150,355.00	140,348.00	93.3
Brazilian Reals	231.20	215.15	93.1
US Dollar (US$)	143.95	125.76	87.4
Hong Kong Dollar (HK$)	1,122.49	975.28	86.9
South African Rand	1,109.85	938.80	84.6
Taiwanese Dollar (TWD$)	4,380.00	3,693.00	84.3
Malaysian Ringgit	470.00	377.28	80.3
Chinese Yuan	986.47	792.30	80.3
Thai Baht	4,799.29	3,835.68	79.9
Australian Dollar (AUD$)	149.89	116.41	77.7
Swiss Franc (CHF)	147.88	113.83	77.0
Singaporean Dollar (SIN$)	196.18	139.45	71.1
Japanese Yen	15,372.0	10,206.00	66.4

As it can been seen that there is a very wide variation in the crude oil prices in local currencies and the relative change to those prices since the peak price in July 2008.  Taking the price on 3rd July 2008 as the reference point, in Pounds Sterling and Euros the crude oil price was larger by the beginning of March 2012 than it was on the reference date, by 8.6 and 3% respectively.  For all the other currencies the price is still lower, even thought it is only just for Indian Rupees.  For the majority of currencies the oil prices is around 80-90% of the 2008 peak prices, like the US Dollar.  However there are a few currencies where the oil prices is less than 80% of the 2008 peak prices (Australian Dollar, Swiss Franc, Singaporean Dollar and Japanese Yen).  Nevertheless the currency in which the crude oil prices is the lowest compared to the 2008 peak is the Japanese Yen and it the lowest by quite a margin!

The troubling thing for the UK and Euro Zone is that the crude oil price has been constantly high (at closet to 100% for the UK and 90% for the Euro Zone) compared to the 2008 peak, since the beginning of 2011.  This is not a good sign as it highlights external stresses being placed on their economies from high energy prices in their local currencies.  On the other hand the Japanese and to a lesser extent Singaporean, Swiss and Australian economies wont be suffering the same external stress from high local energy prices (although they are likely to suffer from other things instead).

So it would seem that compared to the peak crude oil prices seen in July 2008, oil is cheapest priced in Japanese Yen and the most expensive priced in Pounds Sterling. 

Written by Inflation Monkey. Join on Google+

Rare Earths Prices are as Expensive as they were in the 1970s – Inflation Adjusted Historical Rare Earth Metal Price since 1970s in Pounds Sterling

Rare Earth Metal Prices - Not as cheap as they use to be

Rare earth elements or rare earth metals are a set of seventeen chemical elements in the periodic table, specifically the fifteen lanthanides plus scandium and yttrium.  Scandium and yttrium are considered rare earth elements since they tend to occur in the same ore deposits as the lanthanides and exhibit similar chemical properties.

They have several industrial applications from electronics (semiconductors), glasses, laser, catalyst, magnets to sensors.  The end-use markets for rare earths are estimated to be: catalysts, 47%; metallurgical applications and alloys, 13%; alloys, 11%; glass polishing and ceramics, 10%; permanent magnets, 9%; ceramics, 5%; rare-earth phosphors for computer monitors, lighting, radar, televisions, and x-ray-intensifying film, 5% (Ref: US Geological Survey,Mineral Commodity Summaries 2011).  Until 1948, most of the world's rare earths were sourced from placer sand deposits in India and Brazil.  In the 1950s South Africa took the status as the world's rare earth source, after large veins of rare earth bearing monazite were discovered.  Through the 1960s until the 1980s, the Mountain Pass rare earth mine in California was the leading producer.  Today, the Indian and South African deposits still produce some rare earth concentrates, but they are dwarfed by the scale of Chinese production.  China now produces over 97% of the world's rare earth supply, mostly in Inner Mongolia even though it has only 37% of proven reserves.

New demand has recently strained supply, and there is growing concern that the world may soon face a shortage of the rare earths, this is a very important element to examine.  Plus the strategic political importance to these elements in the semiconductor and sensors used in modern weapons, new mines are been reopened or developed in the US, Australia in particular.

Rare earth elements are not exchange-traded in the same way that precious or non-ferrous metals are. Instead they are sold on the private market, which makes their prices difficult to monitor and track.  There are some reviews of the rare earth market and price, but these don’t usually cover the long term price history or adjusted to account for inflation.  The estimated annual average rare earth price data came from the US Geological Survey.  The US Geological Survey used estimated the US price in actual dollars by a weighted average of imports and export.  The historical UK Pound to US Dollar exchange rate data came from Lawrence H. Officer, "Dollar-Pound Exchange Rate From 1791," MeasuringWorth, 2011 at www.measuringworth.com/exchangepound/.  The prices were adjusted for inflation by converting the nominal price into the equivalent in 2011 US Dollars and 2011 GP Pounds Stirling.  The US inflation data came from the historical CPI from the US Department of Labor.  For the UK inflation the data came from Dominic Webb (2006) "Inflation: the Value of the Pound 1750-2005" Economic Policy and Statistics Section, Research Paper 06/09, House of Commons Library, UK.  From this you get the following results shown in the graph below.

Historical Annual Average and Inflation Adjusted Rare Earths Price since 1940 in Pounds Sterling and US Dollars

The doted lines are the unadjusted nominal annual average rare earths price, and the sold lines are the inflation adjusted rare earths price.  The first thing that becomes obvious is that the unadjusted rare earths price was at its lowest in the early 1961s in Dollars and Pounds Sterling at approximately $82 and £30 per a metric tonne respectively.  Furthermore before 2010 the nominal price peak occurred in 1948 in US Dollars at $14,700 per metric tonne and in occurred in 2008 in UK Pounds at £7,300.   

However when you examine the inflation adjusted rare earths price, you notice that its lowest prices was in still occurred in 1961, in both Dollars and Pounds terms at $618 and £535 per metric tonne respectively.   The pries see in 2010, in both dollars and Pounds are comparably to the inflation adjusted prices in the 1970s, nevertheless are not as high as those before the 1960s.  From the 1940s the inflation adjusted price decreased from $140,000 and £95,000 to $27,000 and £23,000 per metric tonne.   From this chart it can clearly be seen that since the 1962 the inflation adjusted price of rare earths has oscillated between $2,000, and £1,500 to $20,000 and £20,000 per metric tonne.  Using the price in 1971 as a baseline the inflation adjusted platinum price in UK Pounds and US Dollars was indexed and this is shown below.

Historical Inflation Adjusted Rare Earths Price since 1940 in US Dollars and GB Pounds, Indexed to 1971

The indexed price data clearly displays that the historic inflation adjusted rare earths prices has fallen considerably since the 1940s.  Their real prices are no where near the prices they use to be before 1960.  To in examine the relative price changes during this historical cheap price for rare earths the indexed price data is plotted from 1960 and is shown below. 

Historical Inflation Adjusted Rare Earths Price since 1960 in US Dollars and GB Pounds, Indexed to 1971

It can be seen from this chart that the inflation adjusted price in both US Dollars and UK Pounds were stable during the 1960s.  During the 1970s the price was very volatile increasing 800% by 1972 only to eventually decrease to 200% of the 1971 price in Dollars, in Pounds the price also returned to the inflation adjusted value of 1971.  The price was prettily volatile during the 1980s, but not as bad as the 1970s.  However there was a step change in the price at the end of the 1980s and early 1990s.  Since then there has been a gradual decrees in the inflation adjusted pries, were upon it bottoms in 2005 at the same value as seen in the early 1980s, at just under 200% of the 1971 price in Dollars and just above 100% of the 1971 price in Pounds.   Since 2005 the price has rapidly raisin to over 800% of the 1971 price in Dollars and 600% of the 1971 price in Pounds. 

So from a historical perspective this makes the price of rare earths as expensive as the inflation adjusted prices of the early 1970s, but not as expensive as they were before the 1960s.

Written by Inflation Monkey. Join on Google+.

Platinum Prices are the Most Expensive Since 1960 - Inflation Adjusted Historical Platinum Price in Pounds Sterling and US Dollars

Platinum Prices is back to the 1960s and 1980s peak

Platinum is a dense, malleable, ductile, precious, gray-white transition metal. Its name is derived from the Spanish term platina del Pinto, which is literally translated into "little silver of the Pinto River".  It exhibits a remarkable resistance to corrosion, even at high temperatures, and as such is considered a noble metal.  It is one of the rarest elements in the Earth's crust and has an average abundance Platinum of approximately 5 μg/kg.  It is a transition metal and a member of the platinum group metals (PGM).  The catalytic properties of the six platinum group metals – iridium, osmium, palladium, platinum, rhodium, and ruthenium – are outstanding, but platinum has the lowest melting point and is the least dense of them.  This unique property of platinum and other platinum group metals account for their widespread use in the chemical and automotive industries.  

Sources of platinum production are quite limited. More than 88% of world Platinum production is concentrated in just two countries: the Russian Federation and South Africa.  South Africa alone accounts for 75% of as the second biggest supplier at 13%.  The six metals of the PGM occur in nature in close association with one another and with nickel and copper. They are among the least abundant of the Earth's elements. Of the few known deposits, those in South Africa and Russia are by far the largest. There are fewer than ten significant pgm miningcompanies in the world.

Platinum in used in a range of industries, but in 2011 around 32% of all the mined supply were used in the automotive industry as the catalyst in automobile catalytic converters with an almost equal amount used in industrial applications.  With petrol (gasoline) engine the amounts of air and fuel burnt are usually in chemical balance, there being no excess of either.  Under these conditions, and at the quite high temperatures (350-750°C) of the gasoline exhaust gas, platinum and/or palladium oxidise the pollutants carbon monoxide (CO) and hydrocarbons (HC), while rhodium catalyses the reduction of nitrogen oxides (nitric oxide and nitrogen dioxide, termed NOx) to nitrogen.  Auto companies, therefore, use catalysts containing platinum and rhodium, palladium and rhodium, or a mixture of all three to meet current gasoline vehicle emissions regulations. These catalytic converters are known as three-way catalysts.  

In marked contrast a diesel engine always operates with a large excess of air, often referred to as lean-burn operation with the an additional complication from the operating conditions of diesel engines that result in low exhaust gas temperatures (120-350°C).  This means that threeway catalysts cannot perform under these conditions, therefore it been necessary to restrict NOx emissions by sophisticated diesel engine control measures and to use an oxidation catalyst to convert excess HC and CO to water and carbon dioxide. To date, only platinumbased catalysts have been able to be used with diesel engines.  Demand for diesel powered cars in Western Europe has grown remarkably over the last decade which as driven the demand for platinum automobile catalytic in Europe.  Since 1979, the automotive industry has emergedas the principal consumer of PGM. Platinum is even used as an investment through platinum coins and platinum jewellery.  With the ever increasing use and demand for high performance catalysts, the every growing number of automobiles and jewellery, this is a very important element to examine. 

The annual average Platinum price data came from www.kitco.com and it dates back to 1960.
The historical UK Pound to US Dollar exchange rate data came from Lawrence H. Officer, "Dollar-PoundExchange Rate From 1791," MeasuringWorth, 2011 at www.measuringworth.com/exchangepound/.  The prices were adjusted for inflation by converting the nominal price into the equivalent in 2011 US Dollars and 2011 GP Pounds Stirling.  The US inflation data came from the historical CPI from the US Department of Labor.  For the UK inflation the data came from Dominic Webb (2006) "Inflation:the Value of the Pound 1750-2005" Economic Policy and Statistics Section, Research Paper 06/09, House of Commons Library, UK.  From this you get the following results shown in the graph below. 

Historical Annual Average and Inflation Adjusted Platinum Price since 1960 in Pounds Sterling and US Dollars

The doted lines are the unadjusted nominal annual average platinum price, and the sold lines are the inflation adjusted platinum price.  The first thing that becomes obvious is that the unadjusted palladium price was at its loest in the early 1960s in Dollars and Pounds Sterling at approximately $80 and £30 per a troy ounce respectively. 

However when you examine the inflation adjusted platinum price, you notice that its lowest prices was in 1999 in both GB Pounds and US Dollars at around £332 and $511 per troy ounce respectively.  Since them the price peaked in 2010 at approximately £1,184 and $1,798 per troy ounce respectively, where upon it dropped back to slightly 2011.  In US Dollar, the inflation adjusted price peak in 2010 was very similar to the value of the previous peaks in 1968 and 1980.  On the other hand when priced in Pounds Starlings the inflation adjusted price peak in 2010 was very close to that in 1980 but not 1968, which was larger, which can be easily seen in the chart below showing only the inflation adjusted platinum price with a linear axis (non logarithmic, unlike the first chart).

Historic Inflation Adjusted Platinum Price since 1960 in US Dollars and Pounds Sterling

The inflation adjusted price bottomed in 1998 at $514 and £324 per troy ounce respectively.  Coincidently this was the year before the palladium priced peaked.  It is interesting to note that between 1960 until 1985 the inflation adjusted price bottomed at around $500 in Dollars and in the region of £460 to £560 in Pounds Sterling.  The all-time peak inflation adjusted price occurred in 1980 in US Dollars at approximately $1,850, but occurred in 1968 in UK Pounds at approximately £1,520 per troy ounce.  When priced in Dollars, there were 3 peaks in the inflation adjusted price, 1968, 1980 and 210.  However when priced in Pounds there were only 1 occasions it peaked, 1968.  There next 2 highest peaks occurred in 1980 and 2010 at approximately £1,000 and £1,200 respectively (which are 33% and 21% lower then the peak in 1968). 

Using the price in 1971 as a baseline the inflation adjusted platinum price in UK Pounds and US Dollars was indexed and this is shown below.

Historical Inflation Adjusted Platinum Price since 1960 in US Dollars and GB Pounds, Indexed to 1971

The indexed price data clearly displays that the historic inflation adjusted platinum prices has been considerably volatile since 1960.  In fact the most stable period for the price in both US Dollars and UK Pounds, was during the 1990s.  The annual average price in US Dollars in 2011, was within 93% of the inflation adjusted peak prices of 1980.  So in reflection platinum is very expensive in US Dollars relative to its historic inflation adjusted price, but only moderately expensive when priced in Pounds.

Written by Inflation Monkey. Join on Google+.

Inflation Adjusted Historical Palladium Price since 1968 - in Pounds Sterling and US Dollars

Palladium Prices still below its 2000 peak

Palladium is a rare and lustrous silvery-white metal discovered in 1803 by William Hyde Wollaston.  He named it after the asteroid Pallas.  It is is a transition metal and a member of the platinum group metals (PGM).  The catalytic properties of the six platinum group metals – iridium, osmium, palladium, platinum, rhodium, and ruthenium – are outstanding, but palladium has the lowest melting point and is the least dense of them.  This unique property of palladium and other platinum group metals account for their widespread use in the chemical and automotive industries. 

Sources of palladium production are quite limited. More than 80% of world palladium production is concentrated in just two countries: the Russian Federation and South Africa.  The Russian Federation alone accounts for around half of total palladium supply.  The six metals of the PGM occur in nature in close association with one another and with nickel and copper.  They are among the least abundant of the Earth's elements.  Of the few known deposits, those in South Africa and Russia are by far the largest. There are fewer than ten significant PGM mining companies in the world.  

Palladium in used in a range of industries, but in 2011 around 64% of all the supply of palladium were used in the automotiveindustry as the catalyst in automobile catalytic converters, which convert up to 90% of harmful gases from auto exhaust (hydrocarbons, carbon monoxide, and nitrogen dioxide) into less-harmful substances (nitrogen, carbon dioxide and water vapor).  Palladium is also used in electronics, dentistry, medicine, hydrogen purification, chemical applications, and groundwater treatment.  Palladium plays a key role in the technology used for fuel cells, which combine hydrogen and oxygen to produce electricity, heat, and water.  Since 1979, the automotive industry has emergedas the principal consumer of PGM.  Palladium is even used as an investment throughpalladium coins and bars.  With this ever increasing use and demand for high performance catalysts and every growing number of automobiles, this is a very important element to examine. 

The annual average Palladium price data came from www.kitco.com and it dates back to 1968.  The historical UK Pound to US Dollar exchange rate data came from Lawrence H. Officer, "Dollar-Pound Exchange Rate From1791," MeasuringWorth, 2011 at www.measuringworth.com/exchangepound/.

The prices were adjusted for inflation by converting the nominal price into the equivalent in 2011 US Dollars and 2011 GP Pounds Stirling.  The US inflation data came from thehistorical CPI from the US Department of Labor.  For the UK inflation the data came from Dominic Webb (2006) "Inflation:the Value of the Pound 1750-2005" Economic Policy and Statistics Section,Research Paper 06/09, House of Commons Library, UK.  From this you get the following results shown in the graph below.

Historical Annual Average and Inflation Adjusted Palladium Price since 1968 in Pounds Sterling and US Dollars

The doted lines are the unadjusted nominal annual average palladium price, and the sold lines are the inflation adjusted palladium price.  The first thing that becomes obvious is that the unadjusted palladium price bottomed around 1971 in Dollars a approximately $35 per troy ounce and in 1969 in Pounds at around £13 per troy ounce.  

However when you examine the inflation adjusted palladium price, you notice that its lowest prices was in 1992 in both GB Pounds and US Dollars at around £84 and $140 per troy ounce respectively.  Since them the price peaked in 2000 at approximately £621 and $891 per troy ounce respectively.  It then dropped back to a price similar to that in the mid 1990’s before rising again by 2011 to a value close to the peak in 2000.  Below is a chart showing only the inflation adjusted palladium price with a linear axis (non logarithmic axis, unlike the first chart).

Historic Inflation Adjusted Palladium Price since 1968 in US Dollars and Pounds Sterling

The second thing that you realize is that inflation adjusted palladium price has been fairly volatile since 1968.  There have been several times when the inflation adjusted price increased by a factor of 3, 4 or larger, over a 4 or four years before crashing back down to bottoms around $70 to $100.  In Pounds the values at the bottoms were not close to each other was they were in Dollars.  Nor were the peaks always reaching the same % increased from the bottoms as they did in Dollars, as seen in the 1980 peak.  Using the price in 1971 as a baseline the inflation adjusted palladium price in UK Pounds and US Dollars was indexed and this is shown below.

Historical Inflation Adjusted Palladium Price since 1968 in US Dollars and GB Pounds, Indexed to 1971

The indexed price data clearly displays that the historic inflation adjusted palladium prices has been considerably volatile since 1968.  In fact the most stable period for the price in both US Dollars and UK Pounds, was between the early 1980s until the late 1990s   Additional the average price in US Dollars for 2011, was within 80% of the inflation adjusted peak prices of 2000.  Tit is interesting to note that since the early 2000s the inflation adjusted palladium price in Pounds Sterling has not increased by the same multiple as see for the price in US Dollars.  This phenomenon has been observed occasionally in the long term historic inflation adjusted gold price and the historic inflation adjusted silver price.  It will be interesting over the next few months to see if this phenomenon is also found for other commodity prices hen inflation adjusted in Pounds Sterling?

Written by Inflation Monkey. Join on Google+.

Special Offer - Train Tickets at 1987 Prices

We all have fond memories of using trains in our younger days, and comments such as “I can remember when you could get from Birmingham to London for £20” are commonly heard by the ticket booths in train stations, as people are continually shocked by the current price of tickets.  In recent months, the media have spend a lot of effort reporting the rising cost of transport and the fact that they are increasing faster then inflation: 

"Rail fares to rise by 5.9% from January"

"Blast of Fury over New Train Fares" 

"Rail season tickets cost up to 10 times more in UK than elsewhere in Europe" 

"Rail fares to rise by 5.9% from January"
"Fare increases of 7% and more from Jan 2nd"

"Making fares regulation fit for purpose" 

"Train fares to rise in January" 

In the UK about half of all train fare are regulated by the UK government and are increased according to the formula of the inflation rate as measured by the Retail Price Index (RPI) in July, plus 1%.  In July 2011 the RPI inflation rate was 5%. This leads to the questions:

• How have train fares compared to UK inflation over the long term?
• Have they increases on average, in-line with inflation or faster? 

Additionally is the inflation rate as measured by RPI telling the whole story, and does this fairly reflect the affordability of train and bus fares? 

The price data to analyse the relative increases for rail fares, comes from the underlining data for goods and services compiled by the Office of National Statistics (ONS) since 1987.  This is the same data the ONS use to calculate the UK inflation rate as measured by the Consumer Price Index (CPI) and Retail Price Index (RPI).  All the data used here has been index to January 1987 to allow simple comparison of  price increases.  For example an index value of 300 in 2011, means that that the price at this time had tripled since January 1987 (when it was 100).  The charts of the sector breakdown of the ONS inflation data came from InflationaryPressure.com. 

The chart below shows the index values of train tickets against RPI for the last 25 years.  It can clearly be seen that rail fares have increased faster than inflation, as measured by RPI over the last quarter of a century.  A closer examination of the chart reveals an increase in-line with RPI until 1991.  After this, they increased at a slightly faster rate, but not by much.  However since the early 2000s rail fares started to increase faster than RPI.  By 2011 RPI had increased approximately 2.5 times since 1987, compared to train travel which increased by approximately 3.5 times!

So the answer to the first question posed earlier, - yes, train fares have increased faster than inflation over the majority of the last 25 years.

Chart of Historical UK Train Fares against UK Inflation RPI Since 1987

However does this tell the whole story?  Does this mean that on average bus and rail fares are much more expensive than they were in 1980s?  What about the affect of rising wages over the last 25 years?  Did they rise in line with inflation?

Below is a chart showing the average salary index against RPI.  It can clearly be seen that the average wages in the UK have increased faster than inflation, as measured by RPI, for almost 75% the the last quarter of a century.  It is true that average salaries have been increasing at a much slower rate than RPI since the Credit Crunch which started in late 2008, however over the last 25 years, the compounded growth of average wages has out striped RPI.  By 2011, RPI had increases approximately 2.5 times since 1987, however average wages had increased by over 3 times!

Graph of Historical UK RPI Inflation against Average Salary Growth

When train fares are compared to average salaries a different trend is discovered, as shown in the chart below.  It now seems that train fares almost perfectly track average wages over the last 25 years.  There was a slight deviation in the increases in the early 2000s, when train fares increased less than RPI, but this was a relatively small amount.

Chart of Historical Train Fares against UK Average Salary Growth Since 1987

This leads to the next question: how have bus and coach fares increased compared to rail fares?  The graph below shows that rail fares and bus & coach fares are very closely correlated as then have tracked each other very closely since 1987.  

Graph of Historical UK Train Fares against Bus and Coach Fares Since 1987

This leads to the conclusion that wages make up the largest part of the cost-base for trail, bus & coach fares as they have all increased faster than inflation, but in-line with average salaries for a quarter of a century.  So to get train, bus or coach fares to be cheaper in the future, the companies need to 1) be more efficient or automated (ie reducing the head count) or 2) the wages of their staff need to decrease relative to the national average, or a combination of the two.  Not a very pleasant prospect for the employees in the rail, bus and coach industries, if everyone says that fares are too expensive and must come down in the future.

So train, bus and coach fares are just as cheap (or expensive) relatively to wages as they were 25 years.  This will be a controversial result to many.

Written by Inflation Monkey. Join on Google+.