Thursday, November 20, 2008

Real Gas Prices Are Close to a 7-Year Low in K.C.

One way to adjust gasoline prices for inflation is to measure the price over time in terms of the number of minutes worked at the average wage to purchase a gallon of gas. Using the monthly nominal price of gas from the EIA, and the average hourly wage from the BLS via the St. Louis Fed, the chart above shows the cost of one gallon of gas at the average retail price measured in the number of minutes of work at the average hourly wage each month from January of 1980 to November 2008.

For example, when real gas prices peaked in 1981, it took almost 12 minutes of work at the average hourly wage of $7.29 to purchase a gallon of gas at the retail price of $1.42. When real gas prices bottomed out in early 1992, it only took 4.15 minutes of work at the average hourly wage of $13.30 to purchase a gallon of gas at the average retail price of $0.92. By June 2008, when gas was selling for $4.05 per gallon, it took 13.5 minutes of work at the hourly wage of $18 to purchase a gallon of gas.

Now that the national average price of gas has fallen to $1.99 per gallon (data here), it only takes 6.5 minutes of work at the average hourly wage of $18.25 (estimated) to purchase a gallon of gas, the lowest real price of gas since February 2004 (when gas was $1.65 and the average wage was $15.54), and about 50% of the cost in the early 1980s. And now that the price of gas has fallen to as low as $1.39 per gallon at some Kansas City stations (data here), it only takes 4.57 minutes of work there to purchase a gallon of gas. The last time the average price of gas nationally was that low was February 2002, almost 7 years ago!

2 Comments:

At 11/20/2008 9:39 PM, Anonymous Anonymous said...

As this deflationary depression gets worse over next year they'll keep getting cheaper. YaHoo

 
At 11/21/2008 2:52 AM, Blogger 1 said...

"As this deflationary depression gets worse over next year they'll keep getting cheaper"...

Hmmm, I'm thinking this bailout crapola is going to drive inflation over the long run though some deflation is what's happening right now...

Recessions and Inflation since 1914

 

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