I know gas is cheaper than it was a year ago, and even six months ago. With the price falling through $2 per gallon, I’m feeling pretty good when I fill up my car. Since I currently support five drivers, each with their own vehicle, cheap gas is one of my best friends.
But I want it to go lower. I want gas to be as cheap as it was when I first started paying for it myself.
As it turns out, it already is.
At just under two bucks a gallon, gas is cheaper than milk, shampoo, soda, and in some instances bottled water. Gas is so cheap that SUVs and big trucks are popular again.
But that still doesn’t register in my mind as cheap compared with historical levels. So I pulled up average annual prices going back to the late 1920s, then used the Bureau of Labor Statistics’ consumer price index calculator to adjust the prices for inflation. The current level of $1.96 per gallon isn’t an all-time low, but we’re getting close!
In 1929 autos had reached 90% market penetration in urban settings, but obviously the industry was still new and there were a lot more cars to be sold. Almost half the country still lived on the farm. In today’s dollars, gasoline was $2.91.
Then the Great Depression hit.
Everything dropped and the U.S. suffered its worst bout of deflation in history. Gasoline fell 20%, bringing it down to $2.65. So today, we are paying less for gasoline than Americans did during the Great Depression!
Gasoline prices remained low – but so did inflation – throughout the 1930s. The onset of WWII brought modestly higher fuel prices and rationing. When things settled down in the 1950s, gas was about $2.50 per gallon.
This had more to do with the strong U.S. dollar than anything else. As other countries struggled with deflation after the war and finally broke their fixed exchange rate with the dollar, their currencies would fall. This pushed up the value of the buck and we were able to buy foreign goods, including petroleum, at lower prices.
The goods times ran until the early 1970s when our domestic oil production peaked, Nixon closed the gold window stoking inflation, and Middle Eastern countries punished the U.S. for supporting Israel by drastically increasing the price of oil. In 1970, gas was $2.14. By 1975 it was $2.34 – if you could get it (think rationing and long lines).
Gas hit a top in 1982 at $3.22. At that point I was in high school southwest of New Orleans. Yes, there really is land down there. My father was a ship captain in the oil fields of the Gulf of Mexico. Everything was humming, and money was flowing. U.S. companies were drilling like crazy, but so were the Saudis and every other country with a proven oil reserve. New supply flooded the market, driving down the price of oil and gasoline for years. Sound familiar?
In 1987 gas had fallen to $1.80, and by 1998 it dropped to $1.54. At that point oil was $10 per barrel, or $14.56 in today’s dollars. In March of 1999 the Economist ran a cover depicting the world “Drowning in Oil,” and forecast the price to fall as low as $5 per barrel. It didn’t happen.
Oil has zigged and zagged with world events since then, dragging the price of gasoline with it. The highest annual average price of gas I found was $3.76 in 2012, which makes our current cost of $1.96 just a few short years later look dirt cheap.
The current situation is an unusual mix of historical time frames. We’re in the economic winter season, complete with deflationary pressures and stagnant wages, just like the 1930s. As China joins the “low-growth” club, the global slowdown will only get worse.
At the same time, vast new supplies have been added to the markets through technological breakthroughs such as fracking. That’s more reminiscent of the 1990s than any other period. With both forces weighing on the markets, slowing demand at the same time that we have greater supply, oil and gas could remain low for years.
While that spells long-term trouble for the oil patch – which now extends from the tip of Texas through North Dakota, and as far east as Pennsylvania – it will give consumers like me and my family a welcome break from what seemed like a steady march higher in the cost of living.
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