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(an email exchange)

On Thu, Jun 19, 2008 at 10:38 PM, Russell wrote:
>   
>   
>   SUV sales may be falling off the cliff in the US, but in China, they are red hot.
>   Sales of the large vehicles in China rose by 40% in the first four months of this
>   year. That is twice the growth rate for the Chinese passenger car market.
>   
>   Its no surprise why: The costs of petrol and diesel in China is as much as 40%
>   cheaper than US levels (which are nearly half of European prices).
>   
>   China, the second-biggest fuel consumer after the U.S, has been encouraging
>   SUV purchases via subsidized fuel.
>   
>   That now appears to be changing: The Chinese government will “increase
>   gasoline and diesel prices by 1,000 yuan ($145.50) a ton, the National
>   Development and Reform Commission said,” according to a Bloomberg report.
>   This represents a 17% price increase for gasoline and 18% for diesel. China is
>   also scheduled to raise jet-fuel prices by 1,500 yuan a ton (~25%).
>   
>   The response in Crude futures was immediate: Crude Oil fell almost $5, spurring
>   gains in the broad averages.
>   
>   Demand Destruction is now clearly upon us. Its a cliche, but its true: The best
>   cure for high prices are high prices.
>   
>   

Yes, but…
   
This also means rationing by price which means only the world’s richest get to drive SUV’s and the lower income groups have to take the bus.
   
Distribution of consumption gets skewed towards the top.
   
Interesting that much of the political left wants higher prices to discourage consumption, as its counteragenda regarding their distributional desires.

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