Fuel prices are regularly in the news, especially when they rise. Assuming a constant tax burden, changes in the final price essentially reflect the evolution of the price of oil. A consequence? The price also falls, always little from the consumer’s perspective, but it falls. For example, in February 2025, the average price of regular gasoline was around €1.8/liter. A year ago, before the war in Iran, the value was close to €1.7/l.
Now, I propose an exercise: apart from seasonal products, do you remember any whose price fell in the last year? Maybe the eggs…
Price resistance to declines is widely documented. At most, prices may stop rising, even if the reasons that gave rise to the original rise (maximum fuel prices) have disappeared. They don’t go down. In these circumstances, it is natural that employees who, in the meantime, have lost purchasing power, want to restore it, putting pressure on production costs. The rest is history. Next thing we know, we have central banks raising interest rates to contain inflation, with all the attendant consequences.
For this reason, as long as it is accepted that the increase in fuel prices and other factors of production is a mere epiphenomenon, it would be important for governments to adopt targeted and transitory measures that avoid giving justification for the inflationary spiral to be set in motion. The design of such policies should have an empirical basis, including better understanding the price formation mechanism and the underlying cost structure. Discounts, on the one hand. Supervision, on the other. And, always, a stimulus for more competition. And, in particular, move towards reforms that prepare us to face storms (climate or energy).
This effort, combined with compensation for the effects of storms, will put pressure on the accounts. Which brings to mind two things. First, that of the guy who, faced with the threat of “his wallet or his life”, exclaims “I miss money so much”! The second, what if we had a sovereign wealth fund?
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