Inflation Adjusted Gasoline Prices (2023)

Without looking at inflation-adjusted prices it is difficult to see where gasoline prices actually stand. Back in 1918 gasoline was $0.25 a gallon and by 1932 prices had fallen to 18 cents a gallon! But as we all know over the last 100 years the purchasing power of the dollar has fallen drastically. So, in order to get the true picture, we can’t just say that the lowest price of gas was 18 cents per gallon, we need to adjust the price for inflation. When adjusting for inflation there are two prices… the first is called the “nominal price” and that is the actual price you would have paid for gas at the pump i.e. 18 cents. The key price though is the inflation-adjusted price which calculates what the price would have been if we were spending current dollars on a previous date. In this case, we are basing our calculations on the value of a dollar in April 2022.

In other words, imagine taking today’s dollars and jumping into a time-traveling DeLorean and going back to a specific date in time. As you travel back in time, each dollar you bring with you shrinks based on the equivalent purchasing power of that time. The inflation-adjusted price (aka. the price in “real dollars”) is how much you would have to pay back then, using the weakened purchasing power of today’s dollar. So if overall prices have doubled over a specific time period it would take two inflation-adjusted dollars to buy something that only cost one dollar, back then.

Lowest Inflation-Adjusted Price of Gasoline–
$1.80 in 1998

Looking at the table above it is interesting to note that both 1972 and 2016 bottomed at roughly the same inflation-adjusted price even though the nominal price was drastically different.

If we look at the chart below we see that in inflation-adjusted terms, the first low occurred in 1931 as nominal prices fell from 30 cents a gallon in 1920 to 17 cents in 1931. Thus in 11 years prices fell 43%. But we have to remember that 1931 was the beginning of the “Great Depression” and overall prices fell 24% during the same period. As we can see gasoline prices fell much more than prices in general in the early portion. It is noteworthy that in 2016 prices for gasoline on an inflation-adjusted basis were actually much lower than they were during the Great Depression.

Since 2016, prices ticked up a bit but then made another bottom in 2020. Although as of this writing gas prices are well over $4/gallon nationwide and over $6.00 in California. The nationwide average for Regular gasoline for 2022 so far is “only” $3.77 (but it is still early).

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Gasoline in the Great Depression

During the remainder of the 1930s inflation-adjusted prices rose to the equivalent of $4.10/gallon in 1938 with the nominal price of 20 cents a gallon. The rise in inflation-adjusted prices is actually due to overall deflation making the adjusted price look higher even though the nominal price remained the same. In 1929, gas was 20 cents a gallon and it fell to 17 cents a gallon in 1931 before climbing back to 20 cents a gallon. Of course there were some regional variations in price and 20 cents was the average.

Gasoline Prices in the 1940s -50s

In 1940, nominal prices dipped back to 18 cents a gallon bringing the inflation-adjusted price down to $3.72. From there, gasoline prices actually rose but inflation rose faster due to WWII so the inflation-adjusted price of gas appeared to fall, but due to war-time rationing gasoline was not always available at that price. The next bottom occurred in 1947 as inflation-adjusted prices had fallen to $2.98, with nominal prices back up to 1926 levels of 23 cents a gallon.

By 1949, just two years later, nominal prices had climbed to 27 cents a gallon (a 17% increase) and inflation-adjusted prices were $3.28/gal. From 1950 through 1959 nominal gas prices climbed from 27 cents a gallon to 30 cents a gallon with a brief stop at 31 cents a gallon in 1957. But over the same period, overall inflation climbed faster so the inflation-adjusted price actually fell from $3.24in 1950 to $2.98in 1959.

Gasoline Prices in the 1960s -70s

From 1960 through 1965 nominal gas prices bounced between 30 and 31 cents a gallon while the inflation-adjusted price fell from $3.03 to $2.85. But then the nominal price of gas started to climb and by 1970 had increased 20% to 36 cents a gallon but on an inflation-adjusted basis, gas prices had actually fallen to $2.68. And by 1972 gas on an inflation-adjusted basis was a real bargain at $2.49a gallon.

At this point, OPEC felt they were being cheated as the value of the dollars they were receiving were becoming worth less and less. So they started squeezing prices, which drove nominal prices in 1981 up to $1.35 and inflation-adjusted prices up to $4.29. Note that this price was higher than the price during 1934 and 38 but below the 1918 price.

From there nominal prices fell moderately over the next 17 years and inflation itself moderated falling from 13.5% in 1980 to 1.86% in 1986 and then increasing to 4.82% in 1989. This resulted in drastically cheaper gas on an inflation-adjusted basis with the lowest recorded inflation-adjusted price for gas occurring in 1998 at $1.80 per gallon.

In 1998, overall price inflation made it look like gasoline prices were rising, so most people didn’t realize that gas was actually cheap on a historical basis. But they knew it intuitively since a smaller portion of their budget was going toward gasoline. In fact, gas had gotten really cheap by historical standards allowing people to buy gas guzzlers like SUV’s and Hummers.

Gas Price Peaks

Note: Remember these are annual average prices for regular “conventional” motor fuel. Some states require “reformulated” fuel which would cost more. Some states also impose higher than average taxes on gasoline and so prices will be higher in those states. Also, Mid-grade and Premium fuel will also cost more. Plus since these are “annual average” prices, half of the year prices will be higher and half the year prices will be lower (sometimes with considerable variation over the 12 months).

On an annual average inflation-adjusted basis, gasoline prices have tended to peak in the same range over the entire 96-year price history. Back in 1918 as gasoline was just entering commercial production prices were at their peak at $4.79but as refining capacity improved prices began to fall (in both nominal and inflation-adjusted terms).

In the early 1930s demand for gas fell and so did prices but as overall deflation took hold the inflation-adjusted price peaked at $4.10 in 1934 & 1938.

The next peak occurred during the mid-1930s and then there was a long period of relatively low gas prices so the rapid increase in the late 1970s was a major (and somewhat artificial) shock to most people who saw nominal prices rocket above $1.00/gal. for the first time ever. Most did not realize that on an inflation-adjusted basis the last time prices were this high was during the Great Depression (not that the thought would have brought much comfort).

Recent Gas Price Action

Over the next 20 years, people in the United States once again got used to low gasoline prices. And then from 2002 to 2008 prices for gas once again climbed to previous peak levels on an inflation-adjusted basis. From there the stock market crash brought some relief in gas prices as virtually everything fell in price. But relief did not last long and by 2012 gas prices were once again at peak levels.

In late 2014, OPEC started a “price war” in response to the United States’ increased production due to fracking and prices fell drastically. In 2016, prices fell below the 1931, 1947, and 1972 lows 9in inflation adjusted terms). In the ensuing years, increased production due to fracking allowed the U.S. to become energy independent and the biggest oil and natural gas producer on the planet. An interesting article by NPR: How An Engineer’s Desperate Experiment Created Fracking.

Biden’s Impact on Gas Prices

On his first day in office, Joe Biden halted completion of the Keystone XL pipeline via Executive Order. Ironically, the Keystone XL would have been the world’sfirst zero-emission energy pipeline.Simultaneously, he placed a “temporary” ban on drilling in ANWR which would have increased the use of the Alaskan pipeline.His Executive Order also halted energy development on federal landandshut down the 80 million-acre oil lease sale putting the Louisiana oil and gas industry in danger. So with the stroke of a pen, he eliminated U.S. energy independence.

The oil and gas business is a very capital intensive business, and huge amounts of new capital are required to explore and drill for oil. But due to the anti-oil and gas policies of the Biden administration, large banks and other investors are reluctant to risk capital on oil exploration since the project could be halted mid-stream by government fiat.

Instead of buying oil from friendly neighbors like Canada the Biden administration is courting countries like Saudi Arabia, Venezuela and Iran, placing the U.S.’s energy situation on an even more unstable footing.

Russian Oil

To make matters worse, these costly policies were followed by Russia’s invasion of Ukraine. Russia is the world’s third largest oil and gas producer, producing about 10 percent of the world’s oil and 40 percent of Western Europe’s natural gas. So, when the West embargoed Russian oil it drastically reduced available supply for Western Countries.

The obvious result has been skyrocketing gas prices.

The average inflation-adjusted gasoline price since 1918 in “April 2022 dollars” is $3.20so whenever inflation-adjusted gasoline prices were above $3.20 they were “high” and whenever prices were below $3.20they were “low”. From the table below we can see that 2014 had above-average prices, then every year through 2021 gasoline prices have been “below average”.

Perspective

When we look at gas prices from our own personal perspective we only see a small window of 4 or 5 years at most. Rarely do we even consider a 10-year time frame. Therefore, we might assume that gas prices “always go up.” But if we look at the big picture in inflation-adjusted terms we will get quite a different picture, as we can see from the chart above. Yes, the black “nominal price” was continually rising through about 2006 but even in nominal terms from 2012 through 2020, we saw a pretty significant decline.

If we look at gas in inflation-adjusted terms, except for a few short-term spikes, it was actually trending downward from 1918 through 1972. Which is to say that the cost of living based on other things increased in price more than gasoline over that period. From 1972 through 1981 prices moved up sharply, and by 1980-81 everyone was suffering from sticker shock as nominal gas prices rose above $1.00 for the first time, but then gasoline resumed its downward trend.

Due to pressure from the Arab oil embargo, from 1970-1980 gasoline regained almost all it had lost over the previous 50 years. Then from 1980 – 2000 gasoline fell to new lows on an inflation-adjusted basis. But from 2000-2006 gasoline caught back up with other prices and was back where it was in 1918. Then the 2008 recession hit and world-wide demand slowed and prices fell sharply but quickly rebounded with fears of “peak oil”.

But then technological improvements due to hydraulic fracking allowed the price to drop both in nominal and inflation-adjusted terms, although overproduction caused a reversal in 2016. Since then the industry has leveled out and prices have stabilized. Over the longest term, we can see that the linear regression line has actually been trending down since 1918.

Data Sources:

• Historical Gas prices- eia.gov
• AAA Gas Prices
• Consumer Price Index

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