Two years ago, gasoline prices hit a record $5.02 per gallon nationally, a spike that shook consumer confidence, spooked investors, and strained family budgets. This surge contributed to a national inflation rate of 9%, a level not seen since the early 1980s.
“Five-dollar gas sent shockwaves through the system. No American outside of California had ever seen five-dollar gas before,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
While gas prices today are not considered cheap, they are significantly lower than those record highs. As of Thursday, the national average for regular gas was $3.46 per gallon, according to AAA. This is $1.56 below the peak of June 2022 and 13 cents lower than the same time last year.
“We’ve come a long way. We’re in a much healthier and balanced market than two years ago,” said De Haan.
Gas prices were notably cheaper during the COVID-19 pandemic due to drastically reduced demand. Even in June 2021, the national average was slightly lower, at about $3.08 per gallon.
Impact on Inflation
Gas prices peaked this spring at $3.68 per gallon on April 19. The subsequent decline has alleviated some pressure on consumers. The Bureau of Labor Statistics reported that monthly consumer prices remained unchanged between April and May, marking the first time in nearly two years. A key factor was the drop in gas prices.
Lower inflation has kept alive hopes that the Federal Reserve might cut interest rates at least once before the year’s end, which would provide relief to borrowers facing high rates on mortgages, credit cards, and car loans.
Gas prices play a significant psychological role in shaping perceptions of the economy, with potential political implications. A spike to $4 per gallon could harm President Joe Biden’s reelection campaign by exacerbating concerns about the high cost of living and denting consumer confidence.
“Gas prices are so central to how people think about their financial situation. They are the single most important variable in terms of how people are doing — especially low-income households,” said Mark Zandi, chief economist at Moody’s Analytics.
Regional Variations
Drivers in several states are paying much less for gasoline than they were a year ago. Notable decreases include Utah (69 cents), Washington (47 cents), and Idaho (38 cents). Significant price drops have also occurred in key battleground states like Arizona (59 cents), Wisconsin (33 cents), and Nevada (24 cents), according to AAA.
“As the summer driving season continues, Americans are seeing gas prices drop around the country,” White House spokesperson Angelo Fernández Hernández told CNN. “But there is more work to be done — the President remains committed to lowering prices at the pump for Americans and maintaining a stable and secure energy supply.”
Inflation-Adjusted Prices
While some may long for the $2 gas prices of the previous decade, it’s essential to consider that people are earning more today than they were then. On an inflation-adjusted basis, current gas prices are comparable to pre-COVID levels. According to the US Energy Information Administration, real gas prices stood at $3.34 per gallon in June 2019 and $3.61 in June 2018, close to today’s average of $3.46.
Domestic Oil Production
Despite frequent regulatory battles with the White House, US oil production is at near-record levels, driven by the shale oil boom. The United States produced 13.2 million barrels of crude oil per day in March, just shy of the record 13.3 million in November.
“Just think about where gasoline prices would be without US shale,” said Rob Thummel, senior portfolio manager at energy investment firm Tortoise.
Although oil prices are higher than last year due to OPEC+ production restraints and geopolitical concerns, gas prices have been mitigated by improved gasoline stockpiles.
“It’s all about inventories,” Thummel said. “Inventories are likely headed back to normal levels, which will keep gasoline prices lower throughout the summer driving season. That’s good news for consumers.”
De Haan noted that gas prices have been lower than GasBuddy’s June forecasts, partly due to reduced driving. If major disruptions such as hurricanes or oil price shocks are avoided, gas prices should remain subdued.
“It’s a good outcome — dare I say a better-than-expected outcome,” he said.