Friday, May 30, 2008

Is Gasoline Really Getting More Expensive?

It might seem like a ridiculous question, but it's not. I'm only talking about the average price of gasoline in the U.S. The price of gas has been surprisingly high for decades when expressed in equivalent purchasing power of the dollar (in other words, accounting for the impact of inflation). Gas in 1920 cost about $3.00 per gallon in current dollars. It went through a long slow price decline in the decades between 1920 and 1980, then there was a sudden spike back to $3.00 per gallon in current dollars. This was the era of OPEC and lots of oil intrigue. Then surprisingly, gas dropped all the way back down to $1.50 in todays dollars for most of the 90's. It started trending back up after 2000. Gas hitting three dollars a gallon is a recent memory for most of us. However, now that gasoline has shot past $4.00 a gallon we are really in new territory. In constant 2005 dollars gas is by far the highest it has been during the history of widespread automobile usage in the U.S. Furthermore, in just a few years it has rocketed from the equivalent of $1.50 a gallon to the current prices. Here is a graph of prices from 1920 to 2005 .

We have the highest price in real dollars following a decade (the 90's) of the lowest price in real dollars. This time, gasoline truly is getting far more expensive!
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