GAS IS CHEAP
It hurts to pay $5 per gallon for gasoline. It hurts more when we are used to paying a lot less for it.
For a brief time during the spring of 2020, the price of regular, unleaded gasoline dropped below $2.00 per gallon. I filled my tank at the time and savored the moment for a couple of weeks.
Since that brief moment two years ago when the price of a barrel of crude oil approached $0, there has been no such relief.
Drivers are paying approximately $4.00 per gallon (national average)currently, so some of the sting from higher prices has diminished. Most of us though, would say that’s still too much.
Maybe; but at $4.00 per gallon today, gasoline is less than half its price of a century ago in inflation-adjusted terms.
One hundred years ago, a gallon of gasoline was 10 cents. Since then, the U.S. dollar has declined in value by ninety-nine percent.
What we mean by “declined in value” is that the dollar has lost ninety-nine percent of its purchasing power over the past century. In other words, the current purchasing power of today’s dollar is only one penny compared to one dollar a century ago.
That loss in purchasing power translates into higher prices for all goods and services over time. As such, it costs one hundred times as much today for comparable goods and services as it did a hundred years ago.
A one-hundred fold increase in the price of gasoline would mean $10 per gallon today (10 cents x 100 = $10).
Hence, the current price of $4.00 per gallon for gasoline is less than half what might reasonably be expected.
There are several points of note regarding current gas prices today…
- Gas prices are cheaper than one hundred years ago and have remained at lower levels relative to the effects of inflation.
- At $4.00 per gallon today, the price is equivalent to 4 cents per gallon a century ago.
- Most of the increase in gas prices since the onset of Russia-Ukraine war has nothing to do with the effects of inflation.
- Gas prices are declining and will continue to do so as the price of crude oil drops.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!