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Q&A – $4 Gas Is Here – How Do Current Prices Compare Historically?
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Today’s Entry: Hey Brian, thanks for what you do. I’m interested in additional perspective on $4 gas. I don’t want to pay it more than anyone else, but something that’s not really being discussed is how much has changed since the last time we were paying prices this high. Obviously with inflation already at 40yr highs - $4 gas today isn’t the same as 2008. I have two questions. Adjusted for inflation, what would the gas price have to be today to equal the highs hit in 2008 and what’s the highest price paid adjusted for inflation. Thanks again.
Bottom Line: To your point, we entered this week with four-dollar gas being the norm for the first time in over 13-years. That was true nationally with an average price of $4.01 per gallon. In Florida, we’re sitting just a penny lower than that at four bucks. But yeah, inflation’s a thing and it’s as much of thing as it's been in multiple generations – independent of energy inflation. So how about it? How does $4 gas today compare to $4 gas the last time we were paying it?
At the peak of the 2008 summer surge in gas prices, the national average hit $4.11 per gallon. What does that equate to in real-time adjusted for inflation? Gas prices would need to hit $5.37 per gallon to equal those inflation adjusted highs – which is the highest national average price for gas adjusted for inflation. The net rate of inflation has been just over 30% over that window of time – meaning the value of a dollar today is 30% less than it was then. So, there’s a long way to go before we’re talking about prices exceeding the impact they had in the summer of 2008. If it feels like $4 gas today is more painful than it was back then, there’s a good reason beyond it being a case of recency bias. It’s the overall inflation rate.
In the summer of 2008 – in what proved to be the early months of the Great Recession – the inflation rate averaged 3.8% - with most of the increase in the cost of living coming from the higher energy costs. That meant that if you were able to avoid driving as much, or perhaps purchasing a more fuel-efficient vehicle (the summer of 2008 saw demand for Toyota’s Prius grow the fastest of any vehicle), you could limit the impact of fuel inflation. Today’s inflation rate is literally double what it was back then as there’s nowhere to hide from it. As you’re well aware, from housing, to groceries and staples, insurance – you name it we’re obviously impacted by it every day with virtually every purchase – independent of fuel prices.
As I covered in my takeaways yesterday, the average Floridian needs to be earning $378 more per month than a year ago to just breakeven. That’s also what’s different from 2008. The average wage growth in 2008 was 3.9% - meaning that the average American earned slightly more than the rate of inflation – including gas prices. This year, the average person has fallen behind by 2.4% adjusted for inflation. That’s the biggest inflation-adjustment income shortfall in 41 years. But back to gas prices specifically...
The all-time US inflation adjusted price for gas – going back over 100 years is $2.82 per gallon. Anytime we hit above that level, the cost of gas begins to have an outsized impact on our lives. With prices back above those levels for regular unleaded – in addition to all of the inflation pressures from everywhere else – it's understandable that while gas prices at $4 per gallon are 25% below the all-time inflation adjusted high price reached in the summer of 2008, it potentially feels worse now than it might have then. For the average American and Floridian that is the case.