Economic Snapshot: Nominal vs. Real Oil Prices

Second Quarter 2007

(Percent change at an annual rate from the preceding period.)


Q3-06 Q4-06 Q1-07 Q2-07
Growth Rate-Real Domestic Product 2.0% 2.2%* 0.6% 4.0%*
Inflation Rate-Consumer Price Index 3.1% -2.1% 3.8% 6.0%
Civilian Unemployment Rate 4.7% 4.5% 4.5% 4.5%

* preliminary estimate

 

 

What is the difference between nominal and real prices?

Nominal prices, sometimes called current dollar prices, measure the dollar value of a product at the time it was produced. Real prices are adjusted for general price level changes over time, i.e., inflation or deflation. These adjustments give us a picture of prices for various years as if the value of the dollar were constant.

 

Were nominal prices for oil higher in 2006 than in any other time during the period 1973-2006?

Yes. The blue line on the graph indicates that the price per barrel in current dollars, i.e., the nominal price, was approximately $60 per barrel in 2006.

 

Were real prices for oil higher in 2006 than in any other time during the period 1973-2006?

No. The grey line on the graph indicates that the real price, i.e., the price adjusted for inflation, was highest in 1981, at more than $39 dollars per barrel.

SOURCE: The Federal Reserve Bank of St. Louis

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