Adjusted For Increases In Income & Fuel Efficiency, Gas Today Is Almost 50% Below Record High

Yesterday’s CD post of a graph of 1,000 gallons of gas as a percent of per-capita disposable income (top graph above) shows that we’re still nowhere near record highs for gasoline, when measured as a share of income.

Warren Meyer at Coyote Blog thoughtfully suggested adjusting the analysis to account for the significant increases in fuel efficiency over time, see middle chart above, which shows the 64% increase in fuel efficiency from the early 1980s to 2005.

The bottom graph above shows the results of Warren’s analysis (see his chart here), which calculates the percent of per-capita disposable income required to buy enough gasoline to drive 15,000 miles, at the average fuel efficiency in each month from 1980 to 2008. This adjustment for increased fuel efficiency makes the initial results even more dramatic.

After adjusting for: a) higher incomes and b) greater fuel efficiency since 1980, we are nowhere near record highs for gas. In fact, to match the 13.75% level in 1980 when average fuel efficiency was only 16 mpg (and gas was $1.26 per gallong and per-capita disposable income was $8,575), gasoline today would have to reach $7.53 per gallon, almost twice today’s prices!

Bottom Line: Gas prices today are almost 50% below the record highs of 1980, after adjusting for higher incomes today and much greater fuel efficiency.

Posted in Categories: Commodities, Contributor, Economy, External Research.

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