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Canopy Commentary - Gas Prices

Canopy Commentary - Gas Prices

March 11, 2022
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Gas prices are increasing rapidly in the US, up over $1 since the start of the year, and up 65% since just before Covid (see chart below). You will hear from the media that this is the highest price of all time, which is true. As always, however, context is required to get the full story.

Source: Bloomberg

The chart below shows the real price of gasoline per mile when accounting for purchasing power of a dollar, increased car efficiency, and increased wages.

Back in 1980, gas cost $1.25 per gallon, but the average worker was only making $6.75 per hour (source: BLS). Therefore, it took the typical worker about 11 minutes to earn enough to buy one gallon of gas. With gas currently at $4.30 per gallon, it takes a typical worker making $27 an hour just over nine minutes to earn enough to buy one gallon.

According to the Bureau of Transportation, fuel efficiency of the average car in 1980, driving one mile cost 28 cents for gas (in today’s dollars). Today, if your vehicle gets the national average of about 23 miles per gallon, driving one mile costs about 18 cents in gas. Even if gasoline goes to $5 as some analysts predict, the cost will be ~22 cents per mile. In fact, gas prices would need to reach nearly $7 per gallon to match the 30 cents per mile cost of the early 80s.

Source: MarketWatch

Despite large increases in oil, the US economy managed to grow in the early 1980s and the early 2010s when the cost of gas per mile was much higher. We continue to believe that current levels of gas will not force a recession on the current economy but remain vigilant on its potential impact.