ENERGY PRICES ARE NOT a big deal—or, at least, not as huge as everyone, including the financial media, make them out to be. The average cost of a gallon of gas is around $4.30 right now, according to AAA. That’s high compared to what we’re used to seeing during the past eight years. But I recall the 2011 through early 2014 period, when crude oil was well over $100 per barrel. Back then, some of us were also paying close to $4 at the pump.
Moreover, like most Americans, I earn more money today than I did a decade ago, so $45 to fill up the tank doesn’t hurt as much. Go back even further, to July 2008, and oil was above $140 per barrel. At that time, the average gasoline price was similar to today. Maybe we’ve all been spoiled by abnormally low energy costs in recent years.
Consider three intriguing charts. The first illustrates the decline in energy goods and services as a percent of total personal expenditures. Back in 1980, it peaked above 7%. Fast forward to 2022, and the figure is 3%. Prof. Timothy Duy’s graph shows that Americans spend much less on energy, compared to other goods and services, than we did in the 1970s and ’80s. Conditions are much worse in Europe—the region’s energy costs now rival its 1980 highs.
Next, check out this chart, which compares gas prices to hourly earnings. Adjusted for wage gains over the years, U.S. retail gas prices peaked at $6.13 in mid-2008, according to energy analyst John Kemp. That compares to today’s average pump price of $4.30.
Our last chart adjusts a barrel of Brent crude oil—the global energy benchmark—for inflation. While $100-plus per barrel makes for dramatic headlines, it pales compared to the 2008 peak above $180 and the 1980 high near $160, both figured in today’s dollars.
To be sure, this year’s jump in the cost to heat and cool a home, drive to work and run a business is especially rough on lower-income families. Still, whenever we see today’s alarming headlines, it’s important to consider the context—and take a longer-term perspective.