• How the Price of Gas Has Taken Its Toll on Inflation?

    | Updated on January 13, 2023


    Inflation causes currencies to devalue, leading to higher prices for consumer goods and services. As a result, the higher cost of living for consumers can negatively influence discretionary expenditure and economic growth, among other things. Higher oil prices have historically been statistically associated with higher inflation rates. As the price of oil rises, so do the prices of things dependent on the commodity. For example, expenses for items created from petroleum-based materials, such as plastics, or goods such as fruits and vegetables, which have historically been delivered to market by trucks and trains powered by gasoline or diesel, may rise. There is evidence that the link between oil price and inflation began to weaken decades ago and has continued to weaken. “History suggests that the two are associated, but the relationship has weakened since the oil price rise of the 1970s,” says Bob Iaccino, co-founder of Path Trading Partners.

    Historically Gas Prices

    Average yearly gasoline prices have fluctuated significantly when adjusted for inflation and have witnessed significant rises and declines over many years. The impact of the United States’ embargo against Iranian oil may be observed in the early 1980s, with the price of gasoline reaching a peak in 1982. The cost of gas increased significantly between 2002 and 2008 but then decreased precipitously in 2009 due to the economic downturn. Prices hit their most significant point in the eighty-year history in both current and constant dollars in 2012, but prices began a precipitous decrease shortly after that. The cost of gasoline in 2015 was only seven cents higher than the price of gas in 1929 when measured in constant dollars.

    How People’s Income Has Changed with the Price of Gas

    As the national average price for a gallon of ordinary gasoline has witnessed huge price swings over the past few years, volatile gas prices have taken center stage in the media. Previous price increases were attributed to geopolitical tensions, hurricane seasons, floods in the Mississippi River, and increased travel demand during the summer driving season. Rising gasoline prices impact the individual since they mean that we pay more at the pump, leaving us with less money to spend on other products and services. On the other hand, higher gas prices impact more than simply the cost of filling up at the gas station; they also affect the overall economy. Inversely, as gas prices fall, it becomes more affordable to fill up the tank for both consumers and companies, resulting in significant cost savings for transportation-related industries such as airlines and truckers while simultaneously putting a damper on the domestic oil industry’s growth. Higher oil costs, in general, are a drag on the economy’s performance. This section will discuss some of the negative consequences of high gas prices, both directly and indirectly.

    Mileage and Fuel Consumption

    Driving at high speeds increases fuel consumption and reduces fuel economy due to tire rolling resistance and air resistance. While automobiles achieve ideal fuel economy at various rates, gas mileage often declines dramatically once the vehicle reaches speeds greater than 50 miles per hour (mph). For example, for light-duty vehicles, every five mph you drive above 50 mph is equivalent to paying $0.18 more per gallon of gas (based on the current price of gasoline at $2.63 per gallon). Reduce your driving speed by 5 to 10 mph, and you can save 7 percent to 14 percent on your fuel consumption. When driving on the highway, using cruise control can assist drivers in maintaining a consistent pace because vehicles spend the most energy when accelerating. The following practices:

    • They are obeying the posted speed limit.
    • We are accelerating and braking gently and gradually.
    • Reading the road ahead will improve the fuel economy of your car by 15% – 30% at highway speeds and 10% to 40% in stop-and-go traffic, respectively.

    Driving more cautiously is also considerably safer for you and other drivers on the road.

    Last November, oil dropped in price; will gasoline do the same soon? During the previous decade, the price of crude oil has dictated at least half of the cost of a gallon of gas per gallon. As oil prices fluctuate regularly, so do gas prices, which constantly fluctuate. Various factors determine gas prices, including refinery and distribution expenses, business earnings, and state and federal taxes. In December 2021, the cost of crude oil accounted for around 53 percent of the overall price of regular gasoline. Distribution and marketing accounted for another 21% of total expenditures, federal and state taxes accounted for 15%, and refining costs 12%. The average price of a gallon of regular gasoline in the first week of February 2022 was $3.44 (a slight increase from the previous weeks’ worth of $3.39 in late January).

    Examples of Inflation in Gas Prices

    Since its inception one hundred years ago, the dollar’s purchasing power has altered dramatically.

    Between 1935 and 2022, the price of gasoline increased at a pace of 3.62 percent every year. According to AAA, the price of a regular gallon of gas has increased by four cents from a week ago and is now 18 cents higher than it was a month ago. Meanwhile, Brent crude oil futures hit a seven-year high on Monday, setting a new record. Brent futures rose as high as $95.43 in the early hours of Monday before settling in the $93-$95 area. Moreover, depending on whether or not Russia invades the former Soviet republic, several energy ministers believe that oil prices could reach $100 per barrel in the following days. Since 2014, oil prices haven’t risen beyond $100 per barrel of crude. Back then, the average gallon price reached a high of $3,710 per gallon. Today, that’s the equivalent of $4.29 a gallon of gasoline. Notice that the national averages do not accurately reflect the cost of living in several large states. California is already looking at gas costs as high as $4.70 per gallon—and a spike may push those prices well above $5 per gallon.

    Gas Prices Going Up in Europe

    Natural gas prices have been rising in Europe as worldwide demand for fuel increases. While this is true for most commodities, it has proved particularly problematic in the case of natural gas. It results from a global economic recovery when countries abolish COVID-19 restrictions and completely reopen their markets. As a result of the pandemic’s shock, demand has increased, and markets are now jostling for customers. There is also increased rivalry for natural gas due to the prolonged winters in Europe and East Asia, with purchasers driving up costs. Energy analyst and professor at Sciences Po Paris, Thierry Bros, explained that “you’re finding yourself in a situation where demand has rebounded, but supply has become more constricted.” In addition, the European Union is reducing its domestic natural gas production. With the phasing out of their primary gas field Groningen, the Netherlands, Europe’s leading domestic producer of natural gas, began the process in 2018. In Europe, the amount of working gas in storage has dropped to 74 percent from 94 percent at this time last year, according to data from Gas Infrastructure Europe. In the United States, the ratio has increased to 94 percent.


    Because petrol prices have increased by more than 58 percent since last year, you may be considering purchasing an electric vehicle to save money. Consider that electric cars are often more expensive than gas-powered automobiles and that electricity has its own set of costs. Does this mean that going electric is more affordable? Although the short answer is yes, there are several factors to consider, including your driving habits, where you live, and what kind of vehicle you purchase. Some people prefer to drive a hybrid car with gasoline and an electric motor. According to Kelley Blue Book, the average transaction price for an electric vehicle (EV) is $56,437, approximately $10,000 more than the total industry average of $46,329, including gas and electric vehicles. An electric car is comparable to a mid-range luxury vehicle based on its cost. Installing “Level 2” chargers in the home can save drivers time while also extending the battery life of their electric vehicles. These chargers can be purchased for roughly $2,000, including installation, and are designed to charge EVs faster while also extending the life of their batteries. According to JD Power, charging your vehicle with a Level 2 charger will take less than eight hours, on average. It can take up to 40 hours to fully charge an electric car when it is charged using the Level 1 charging cable that is included with most EVs. This cable can be plugged into any standard 120-volt household electric outlet. However, it is less handy than the other option.

    Joseph Williams
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