Posts tagged ‘Economist Mark Perry’

Economic Impact of Gas Prices

Are gas prices high or low by historical standards?  That seems like a nutty question, with prices at the pump cracking $4.00 a gallon, but one can argue that in terms of household pain, gas prices are nowhere near their historical highs.

Economist Mark Perry, at his blog Carpe Diem, shows that gas prices are far from their highs as a percentage of household income:

I thought the analysis could be taken one step further.  Mr. Perry was generous enough to send me his data, and I added a fourth piece of data to the analysis:  the average passenger vehicle MPG by year, as reported at the BTS here.  The MPG data set is spotty, and required some interpolation.  Also, data since 2004 is missing, so I assumed 2004 MPG's for more recent years (this is conservative, since the long-term trend would indicate fleet MPG's probably improved since 2004). 

From this data I was able to create what I think is a slightly improved analysis.  The key for households is not how much it costs to buy 1000 gallons, but how much it costs to buy the gas required to drive their typical annual miles.  Using 15,000 as an average driving miles per year per person, we get this result:


So, while I too think paying $4 for gas is not my favorite way to dispose of my income, in terms of average household pain created, gas prices are quite far from their historic highs.