Each time we fill up our car we are reminded of rising gas prices. At the beginning of this week, the average price of gas across all formulations was $4.24 per gallon. While gas prices are rising along with many other goods and services we buy, the question is: are gas prices higher now than in the past?
The answer is yes and no. The figure below shows the nominal and the real (or inflation-adjusted) price of a gallon of gasoline since 1978. Based on nominal prices, today's price is higher than the past peak in 2008 and indeed of any past price since the start of our data, but after adjusting for inflation, today's price is actually considerably below the previous peak, and is similar to the prices in the early 2010s.
The next figure tracks the inflation-adjusted prices of a barrel of oil and a gallon of unleaded gas from the beginning of 1978 to February 2022, the last month for which we have an estimate from the Consumer Price Index. As this figure illustrates, oil prices are also rising in recent months and as of March 24, the price for a barrel of West Texas Intermediate was $112. But, like gasoline prices, in real terms, the current price of oil is considerably lower than in the past.
Real prices of oil and gasoline are quite volatile and the large swings in prices can occur rapidly. It is important to note that the recent rebound in oil prices has been occurring since the trough of the pandemic-induced recession in April of 2020.
What does the future hold? Oil and gasoline prices were rising well before Russia's invasion of Ukraine, but that event and the sanctions on Russia that followed have increased market uncertainty in many dimensions. The rapid rise in oil prices over the past month are at least, in part, a result of this uncertainty and the disruptions imposed by hostilities and sanctions. At present, oil futures point to lower prices in coming months, but in the current environment and as the figures illustrate, prices can change quickly.
The answer is yes and no. The figure below shows the nominal and the real (or inflation-adjusted) price of a gallon of gasoline since 1978. Based on nominal prices, today's price is higher than the past peak in 2008 and indeed of any past price since the start of our data, but after adjusting for inflation, today's price is actually considerably below the previous peak, and is similar to the prices in the early 2010s.
The next figure tracks the inflation-adjusted prices of a barrel of oil and a gallon of unleaded gas from the beginning of 1978 to February 2022, the last month for which we have an estimate from the Consumer Price Index. As this figure illustrates, oil prices are also rising in recent months and as of March 24, the price for a barrel of West Texas Intermediate was $112. But, like gasoline prices, in real terms, the current price of oil is considerably lower than in the past.
Real prices of oil and gasoline are quite volatile and the large swings in prices can occur rapidly. It is important to note that the recent rebound in oil prices has been occurring since the trough of the pandemic-induced recession in April of 2020.
What does the future hold? Oil and gasoline prices were rising well before Russia's invasion of Ukraine, but that event and the sanctions on Russia that followed have increased market uncertainty in many dimensions. The rapid rise in oil prices over the past month are at least, in part, a result of this uncertainty and the disruptions imposed by hostilities and sanctions. At present, oil futures point to lower prices in coming months, but in the current environment and as the figures illustrate, prices can change quickly.