The Real Price of Gas

Over the summer, the price for a oil of oil peaked at $147.27 a barrel. I know we’re all supposed to be worry about this, but would you believe that oil just hit a 21-month low?

Crude oil for December delivery fell $2.09, or 3.7 percent, to $54.95 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the lowest settlement since Jan. 29, 2007. Prices have tumbled 63 percent since reaching a record $147.27 on July 11.
Gasoline for December delivery tumbled 6.45 cents, or 5.2 percent, to $1.1746 a gallon in New York, the lowest settlement since the contract was introduced in October 2005.
Pump prices have followed futures lower. Regular gasoline, averaged nationwide, declined 1.8 cents to $2.087 a gallon, AAA, the nation’s largest motorist organization, said on its Web site today. It’s the lowest retail price since March 2005. Gasoline pump prices have dropped 49 percent from the record $4.114 a gallon reached on July 17.

Today’s PPI report showed the biggest plunge on record thanks to gas prices dropping by nearly 25%. If we adjust for inflation, gas prices are much lower than they’ve been for much of the last 90 years.

Feeling nostalgic for the days of 17 cent gas in 1931, 20 cent gas during WWI, the gas below 30 cents during the first half of the 1950s, or the $1.40 gas of the early 1980s? If so, you’d be suffering from “money illusion,” the tendency to confuse nominal and real (inflation-adjusted) prices. Gas is cheaper today in real dollars than any of those past prices.

Posted by on November 18th, 2008 at 12:55 pm


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