Gas Prices: Going Up, But How Far?

Motorists have been complaining about gasoline prices for years—even for decades. Up until the sharp price hikes in 2007 and, especially 2008, they had little to complain about.

Everything’s Relative
For more than half a century following World War II, Americans benefited from fuel prices far below what drivers in other parts of the world had to pay. Gasoline was a bargain, whether it sold for an average of 27 cents a gallon in 1949, 36 cents in 1970, or 93 cents in 1986. It was an even greater bargain in 1998, when the average fill-up cost $1.06 per gallon.


That's because the complainers typically ignored two crucial factors. They failed to account for inflation (which causes all commodity prices to rise), and for escalations in income over the period in question.


When wistful motorists fretted in 1989 that gas had cost a mere 30 cents per gallon in the mid-Sixties, while they now had to pay $1.02, they conveniently forgot how much people's incomes had risen in that period. In 1989, median family income was $34,213, according to the Bureau of the Census, versus less than $7,000 in 1965. So, while the price of gas more than tripled in that timeframe, typical family income was almost five times greater. Even as the cost of living—as measured by the Consumer Price Index—kept rising, gasoline remained a relative bargain.

Valid Argument
Now and then, however, the complainers had a valid argument. Gasoline prices jumped in 1974 as the OPEC fuel crisis and consequent shortages took their toll. After easing back down a bit, they took an even greater leap upward in 1979 and again in 1980, in the wake of America's second fuel crisis.


Regular-grade gasoline had cost an average of 67 cents a gallon in 1978, rising to 90 cents in 1979 and $1.25 in 1980, peaking a year later at $1.38. Even when measured in 2000 dollars (taking inflation into account), the 1981 figure set a record. Gasoline cost nearly twice as much as it had a decade earlier, before the first crisis.