Gasoline Inflation

Inflation adjusted Gasoline Prices

Updated July 21, 2010

Back in 1980 - 81 we were shocked as gas prices rose above $1.00 for the first time. This was especially shocking because just four years earlier in 1976 gas was $0.60 per gallon and in 1969 it was only $0.35 a gallon. But by 1981 only 12 years later it was a full dollar higher at $1.35.  That is an increase of 286% in 12 years!

In 1981 that $1.35 would be the equivalent of $3.24 in inflation adjusted terms for 2010 dollars.

Compare that to the price increase from 1998 where the average price was $1.02 and by July 2008 it had increased to $4.02 and you  have a 294% increase in 10 years. But that is to the monthly peak price.  Amazingly the average price for all of 2008 was $3.23.  Almost identical to the price in 1981 when adjusted for inflation.

 Interestingly, the average price of a gallon of gas from 1918 to the present is $2.39 in 2010 inflation adjusted dollars. So it is safe to say that anytime during that period that the price of gas was above $2.39 in inflation adjusted terms it was expensive and whenever it was below that price it was cheap.  So obviously when it reached $4.00 a gallon in July 2008 it was expensive. And with the average for 2010 at $2.73 it is much closer to the average.

If we look at the average annual Inflation adjusted gasoline prices for each of the following years  (1958, 1968, 1978, 1988, 1998, and 2008 )we see several of the "8" years below the average.

So if the long term average price is $2.39 then in 1988 gas was very cheap and in 1978 it was only slightly below average but in 1981 (at an inflation adjusted $3.24) and in 2008 it was extremely expensive on a historical basis. 

In 1998 gas had gotten really cheap by historical standards allowing people to buy gas guzzlers like SUV's and Hummers.  But that reversed in 2008 as prices rose above the long term average. 

With the Annual Average for 2009 at $2.34 it was extremely close to the long term average price of $2.39.

Remember that these are average annual prices and individual months had much higher averages and on a weekly or daily basis prices could (and did) spike much higher (and lower).

According to the US Energy Information Administration the average price of a gallon of gasoline in March 2008 cost $3.21 ... although I know in many places like California people would have been glad to find gasoline for $3.21 a gallon so in addition to averaging over time it is also averaging over the whole country.

I spent several weeks driving around California in March 2008 and often saw gas closer to $4.00 a gallon and then actually saw $5.00 a gallon in May in Alaska. Granted that was more of a supply/demand issue (it was the only station for a hundred miles and all the gas actually came from a refinery thousands of miles away).  The irony of the matter was across the highway within site of the pump, was the Trans-Alaska pipeline, transporting crude on the beginning of its thousands of miles trip.

The chart above right shows the Average annual Gas prices in nominal terms (what you actually pay) and in inflation adjusted terms (red line).

It is extremely difficult to decide how over or under priced a commodity is when the scale is constantly changing so by adjusting for inflation we can see this much easier. It pays to know what prices are in "Inflation Adjusted Terms" so here are some other inflation adjusted prices you might find helpful.

(click on chart for larger image) 

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See the current MIP to find out what we are predicting for next month and next year. Remember our projections are based upon sound mathematical formulas not on simply extending the current trend forever.

You may also be interested in knowing how to Calculate the Inflation Rate .

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