A quick trip to fill up the gas tank is a painful reminder that prices at the pump have jumped over the last couple of weeks—Figure 1—due to supply concerns. There are fears that higher prices will exacerbate inflation and hurt the economy, as cash that might have gone to other items will be diverted to the gas tank.
Excluding early 2022, when the war in Ukraine began, prices aren’t far from their July 2008 peak.
But when you look at prices adjusted for inflation, a different story emerges.
In real terms (adjusted for inflation), gasoline prices today remain well below the historic peak reached in the summer of 2008 (excluding 2022), when fuel costs hit levels not matched in purchasing power terms since (Figure 2).
The graphic illustrates the price of gasoline, adjusted for inflation in 2008 dollars.
Understanding gasoline prices in inflation-adjusted terms does not minimize the impact of higher fuel costs on household budgets. But it does provide valuable context. Despite the recent price spike, the extraordinary increase in 2008 remains unmatched in purchasing power. Moreover, new cars today are more fuel efficient, which helps absorb some of the bite at the pump.
A price of about $6.10 per gallon today would be roughly equivalent to 2008’s peak.
