Petrol Prices Inflation In India And The USA

Introduction

In current times inflation of fuel prices is a huge problem, on one side where the citizens of India express anger and are not happy with paying high prices inclusive of huge taxes on fuel, on the other side the government argues that the revenue is necessary for its country operations and fund growth. In this investigation, petrol prices in India and the US are going to be looked at closely in terms of their prices. As there are many different cities in India, only the major capital cities such as Delhi, Kolkata, Mumbai, Chennai will be considered.

Generally, high gas prices are caused by high crude oil prices. Oil costs account for 72 percent of the price of gasoline, the remaining 28 percent comes from distribution, refining, and taxes, which are more stable. When oil prices rise, there is an expectation to see the price of gas rise at the pump six weeks later. On May 10, 2018, global oil prices reached $80 per barrel. It followed the U. S. decision to pull out of the Iran nuclear agreement and reinstate sanctions. Production in Iran is expected to drop. In addition, Libya and Venezuela are facing limited production. Oil prices also rose after the November 30, 2017, Organization of the Petroleum Exporting Countries’ meeting. The members agreed to keep production cuts through 2018. The Energy Information Administration forecasts that oil prices will average $73 a barrel in the second half of 2018 and $74 a barrel in 2019 (Amadeo).

Rationale

As my home country is India, I was always aware of the constant changes in fuel prices there and from that thought, the question arises whether there is any relation or patterns in which prices are increased or decreased. Is there inflation of fuel prices in India? Inflation is the general rise of the prices and fall in the value of purchasing the product and in this case it’s the fuel. If there is inflation, is it similar to the United States? Is there a statistically significant difference in the prices? Inflation is also a huge problem in the United States. The higher the inflation rates go the stronger the impact on the economy of the U. S. Price stability can be maintained only when the rates are not very low or high and which can be more predictable. For the US, the petrol prices will be obtained through their official website operated by the US government. Through this investigation, I plan to focus on investigating and modelling inflation rates of India and then comparing it with those of the United States. I also plan to conduct statistical testing methods in order to test their comparison in prices. From obtaining raw data and analysing using mathematical tools like graphs, tables and deriving a conclusion, the questions could definitely be answered and hence I chose this interesting topic. The analysis will take place on a yearly basis and the raw data obtained will be completed through online sources such as the Indian oil corporation which is recognised by the Indian government.

Investigation

The raw data of the prices for all the cities could not be found and only the petrol and diesel prices for the major four cities in India which are Delhi, Kolkata, Mumbai and Chennai were available from a reliable source. Hence only this data shown above for those cities are going to be analysed. The inflation rate is the measure of how fast a currency loses its value. It measures how fast prices for goods and services rise over time, or how much less one unit of currency buys now compared to one unit of currency at a given time in the past. The inflation rate may increase due to the massive printing of money, which increases supply in the economy and thus reduces demand. It may occur because certain important commodities become rarer and thus more expensive. (Inflationrate. com)CPI in this context is known as the consumer price index, it is used as a benchmark for making adjustments in wages, payments, taxes to keep them in tune with the buying power of the dollar.

To model a function for these data points, a linear regression might not be enough and hence and sine equation can be used to graph the points as we can notice the periodic increase and decrease of the values. Hence I chose to use Desmos. When adjusted for inflation, the average annual price of petrol has fluctuated greatly and has recently experienced sharp increases and decreases. The effect of the U. S. embargo of oil from Iran was seen in the early 1980's with the price of petrol peaking in 1982. From 2002 to 2008 the price of gasoline rose substantially but then fell sharply in 2009 during the economic recession. In 2012, prices reached the highest level in the eighty-year series in both current and constant dollars but began a steep decline thereafter.

After all the raw data analysis with tables, graphs and modelling, these equations are certainly not the perfect fit for the data points however, they are fitted to the most likely way possible. From the equations shown above, other than the only difference with 4 units change in the sine coefficient, they are more or less the same. To compare the values of petrol on another perspective, performing t-test might help in getting a better understanding. An independent t-test is used to compare the means of two different samples which can be unrelated. This test is perfect in this case as we do not have samples of the same parent population i. e. , the same countries. Let A and B represent two groups, ma and mb represent means of the respective samples, and na and nb represents the size of the sample.

Reflection

The results imply that the prices of petrol do not seem to be differed a lot. However, there were assumptions and limitations to be considered. The t-test includes the hypothesis testing with a sample population which can not be a hundred percent accurate and also, it is generally assumed that the prices are under a normal distribution which might not be the case minority of the times. A significance level of 5% was taken to carry out the hypothesis testing but this could be decreased to an even lower percentage like 1% to have more significance in the results. The modelling of the graphs however was not the perfectly fitting ones. But were better to be implemented rather than a linear graph with a linear trend line which would not be very accurate and reliable compared to the periodic function of sine. There could have been on the other hand a better fitting equation which would fit the raw data of petrol prices better, which is an improvement if the investigation was undertaken once again. The exploration proved to be very significant as we deduced from the investigation that there is no statistically significant difference between the petrol prices of the U. S and India both from the data modelling and the hypothesis testing perspective. However, this could be further extended by looking at other countries and also with a larger sample. The sample could be made larger by considering more number of years. The investigation can also be extended to other fuels such as diesel, bio and various other types, their statistical data can also be tested and compared with other countries. The types of fuel could be compared with each other to see whether there is any inflation in them and whether the prices are similar in all the types. This concept of modelling and testing can also be done in another area in the field of mathematics such as heights of people in different countries, stocks of various companies, or even the population of different countries.

The choice of approach in this investigation was not only through modelling but also through T-testing. The approach helped in understand the data better and also provided a good processed result. However, the approach could also be changed, for example, a different equation could have been used for modelling the prices. The difficulties that were encountered during the investigation were that the prices in India was not obtained as single values but instead were from the major cities. The average of the values could have been taken but would have impacted on the accuracy of the result. Hence each of the 4 cities were separately compared with the United states. Even though the extensions for this investigations as suggested above were not performed, they definitely hold great value for further exploration and research.