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Relief as Petrol prices in US drop drastically in a week, to drop even more



The price of gasoline continues to fall at breathtaking speed, dropping to a U.S. average $2.656 per gallon, down 25.6 cents in a week, the government reported Monday.

Only three states report statewide averages higher than $3, travel organization AAA reported Monday: Alaska, Hawaii and California, regularly the highest-price states. AAA uses a different survey than the government’s, but nearly always comes up with similar numbers. The government does not publish a state-by-state survey.

The U.S. Energy Information Administration said its average is 21.6 cents a gallon lower than a year ago. It is the sixth-consecutive week that the nationwide average has declined in the EIA’s survey, for a total drop of $1.179 per gallon in that time.

The record: $4.114 July 7.

The collapse in prices has been faster and deeper than forecast.

“It is stunning,” says Tom Kloza, petroleum-price analyst at the Oil Price Information Service, a consultant. “I remember saying $2.75 by Halloween. Now, I think $2.50 by Election Day.”

With the recent drop in gasoline prices many people have begun to wonder exactly how close to historical lows we are? 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. The key price though is the inflation adjusted price which calculates what the price would have been if were were spending current dollars on a specific date. In this case, we are basing our calculations on the value of a dollar in December 2015.

Time Traveling deLoreanIn other words, imagine taking today’s dollars and jumping into a time traveling DeLorean and going back to a specific date in time. The inflation adjusted price (aka. the price in “real dollars”) is how much you would have to pay using the purchasing power of today’s shrinking dollar.

Lowest Inflation Adjusted Price of Gasoline–
$1.48 in 1998

Date Lows
1931 $2.65
1947 $2.44
1972 $2.04
1998 $1.48
2009 $2.54
2015 $2.36

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 interesting to note that in January 2016 prices for gasoline on an inflation adjusted basis are actually much lower than they were during the depression.

Inflation Adjusted Gasoline Jan 2016

During the remainder of the 1930’s inflation adjusted prices rose to the equivalent of $3.35 then they declined a bit. 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. And then in 1938 the nominal price rose to 20 cents a gallon and the inflation adjusted price hit $3.35 again.

In 1940, nominal prices dipped back to 18 cents a gallon bringing the inflation adjusted price down to $3.04. From there the 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. The next bottom occurred in 1947 as inflation adjusted prices had fallen to $2.44, 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 $2.68/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 $2.65 in 1950 to $2.44 in 1959.

From 1960 through 1965 nominal gas prices bounced between 30 and 31 cents a gallon while the inflation adjusted price fell from $2.48 to $2.33. 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 $2.19. And by 1972 gas on an inflation adjusted basis was a real bargain at $2.04 a 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 $3.51. 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 $1.48 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.

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VIDEO: Garden of Joy is officially a GREEN PROJECT



Garden of Joy by Optiven is fully installed with solar powered street lights.

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