Inflation adjusted Gasoline Prices
In 1969 gasoline was $0.35 a gallon but seven years later it had risen to $0.60 per gallon. And by 1980-81 everyone was suffering from sticker shock as gas prices rose above $1.00 for the first time. So in only 12 years, gasoline had risen a full dollar from $0.35 to $1.35. That is an increase of 286% in 12 years! 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 so it was even greater than the 1981 spike.
Price increases are obvious over short periods of time but because the overall purchasing power of the dollar has fallen, in order to compare the cost of gasoline over longer periods of time it is necessary to adjust the price for inflation.
In 1981 that $1.35 would be the equivalent of $3.47 in inflation adjusted terms for June 2013 dollars.
When we look at gas prices from our own personal perspective we only see a small window of 4 or 5 years at most. Rarely do we even consider a 10 year timeframe. Therefore, we might assume that gas prices "always go up." But if we look at the big picture in inflation adjusted terms we will will get quite a different picture, as we can see from the chart above. Yes, the black "nominal price" is always rising but in inflation adjusted terms gas is no more expensive than it was in 1918 but it is considerably higher than it was in 1998 when it reached an all-time low in inflation adjusted terms.
Except for a few short term spikes, gas in inflation adjusted terms, was actually trending downward from 1918 through 1972. Which is to say that the cost of living based on other things increased in price more than gasoline over that period. But then over the next decade it regained almost all it had lost over the previous 50 years. Then from 1980 - 2000 gasoline fell to new lows on an inflation adjusted basis. But since then gasoline has caught back up with other prices and is now back where it was in 1918.
Amazingly the average inflation adjusted gasoline prices for the following peak years were amazingly similar. 1918 was $3.87, 1938 was $3.31, 2008 was $3.49, the average for 2011 was $3.48 and for 2012 was $3.56. All of the peaks are very close when adjusted for inflation. So looking at just those years we might get the idea that the average price of gasoline in inflation adjusted terms was about $3.50 a gallon but that is not correct.
The Average Inflation Adjusted Price of Gas
The average price of a gallon of gas from 1918 to the present is $2.60 in June 2013 inflation adjusted dollars. So it is safe to say that anytime during that period that the price of gas was above $2.60 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 2013 at $3.51 we are once again expensive.
If we look at the average annual Inflation adjusted gasoline prices for each of the following years (ending in "8") we see several of the "8" years are above average and several are below the average.
Inflation Adjusted Gasoline Prices
So if the long term average price is $2.60 then at $1.89 in 1988 gas was very cheap and in 1978 it was only slightly below average but in 1981 (at an inflation adjusted $3.47) but in 2008 it was extremely expensive on a historical basis.
People are Intuitive
In 1998, overall price inflation made it look like gasoline prices were rising, so most people didn't realize that gas was actually cheap on a historical basis. But they knew it intuitively since a smaller portion of their budget was going toward gasoline. In fact, 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. Fortunately, prices fell in 2009 - 2010 but in 2011-2013 gas was once again expensive.
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).
For Example: According to the US Energy Information Administration the average price of a gallon of gasoline in the month of May 2011 cost $3.91 ... although many places like California people would have been glad to find gasoline for $3.91 a gallon. So in addition to averaging over time it is also averaging over the whole country.
Average Cost of Gas in U.S. by Month
Average Retail Price of a Gallon of Regular Gasoline in the Entire USA
|These Gas Price Charts are not Inflation adjusted but are compiled by GasBuddy.com from thousands of local prices submitted daily by individuals from around the country.|
Gasoline Money Saving Tip:
One way to save money on Gasoline is to use a cash back credit card with an extra bonus for gasoline purchases. Some cards can save you 5%. A 5% cash back can reduce $3.91 to $3.71. Saving 20¢ a gallon may not sound like much but if your tank holds 15 gallons that is $3.00 per tank. If you fill up twice a week that is over $300 a year ($3.00 x 2 x 52).
Inflation Indexed Bonds (i-Bonds) are supposed to protect you from inflation while providing a reasonable return. How well have they done?
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