Gas Prices Now and Then
Absent in the news is how gas prices have slowly come down since the summer of 2022. The biggest culprit is the lack of demand coming out of China due to their Covid lockdown policies. China is now loosening those rules in time for an impending global recession, which is another cause for lowered gas demand.
Even less talked about is how oil is pegged to the dollar. Called a petrodollar. The US dollar has strengthened for much of 2022 because our Federal Reserve raised rates much faster than any other central bank across the globe. In terms of pure interest rate movement, that made the dollar more attractive because it was yielding more.
When oil is priced in US dollars, a European would need to exchange their Euros into USD. This was especially painful because the Euro dropped compared to the US dollar, meaning it suddenly costs more Euros to buy $1 USD.
Prior to the Great Financial Crisis (GFC) in 2008/2009, Europe enjoyed an exchange rate of 1 Euro buys $1.60 USD. As of writing this piece, Euros and USD are trading nearly one for one. Like currencies tend to behave, they peak then trough. Gas buyers in Amsterdam are paying $6.48/gallon.
From a US buyer’s point of view, gas prices have come down significantly but for a European, gas prices are still very high. So high that inflation in Europe is 9.2%, down from a high of 11.1%. The peak in the US was 9.1% with the latest inflation report coming in at 7.1% year-over-year.
The chart from Go Banking Rates shows growth of gasoline over the decades. The chart is not adjusted for inflation. For example, $0.27/gallon in the 1950s is $3.40 in today’s dollars. The current national gas price is $3.44. We’re spending nearly the same on gas per gallon compared to the 1950s.
Looking longer term, gas prices have remained steady but the amount of travel we can get from each drop has improved. Electric cars aren’t making a big impact yet, it’s internal combustion engine cars that have improved efficiency. As drivers get into hybrids and electric, we expect the MPG figure to continue to improve more substantially.
Cars in the 1950s averaged 12.5 mpg and have improved to 17.5 mpg in the 2010s. Drivers today are not only paying nearly similar amounts per gallon of gas, but they are also able to drive further on the same gallon.
Rising gas prices get more attention because bad news sells. I’m not here to tell you what not be mad at, but Americans spend on average 2.24% of their income on gas. I can think of dozens of other expenses that should spur more anger.
Gas prices will go back up eventually. Try to keep what’s really going on in perspective and that no president or politician can really (or should) control gas prices.
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