ARIZONA, USA — In the world of economics, there is a difference between the sticker price and the “real price” of a gallon of gasoline. “Real price” (or real values) are adjusted for inflation and provide a more realistic guide to comparing gasoline prices in two different years.
Question:
Are gas prices in Arizona more expensive than ever?
Sources: AAA Arizona and The Economic Outlook Center at ASU
Gas prices were more expensive in August 2008
On Sunday, March 14, the average price for a gallon of unleaded gas in Arizona was $4.59 per gallon. That is the highest amount ever recorded in the state. But according to Lee McPheters, Director of The Economic Outlook Center at ASU, it does not represent the most expensive “real price.”
For example, the last time gas prices spiked dramatically in Arizona was in 2008 during the Great Recession. In August of that year, the average sticker price reached $4.09 per gallon.
According to McPheters, after calculating for inflation, current gas prices would have to hit $5.28 a gallon in Arizona to be as expensive as they were during the Great Recession.
“Real prices are not as high as nominal, unadjusted prices,” McPheters said.
There are other factors to consider
No doubt, today’s high gas prices are a shock and a burden for many Arizona drivers. But for what it’s worth, there are other factors that suggest driving today is overall less expensive than years past.
For example, economists also consider the cost per mile to drive, which takes into account the average mileage of cars.
“Even though prices in what economists would call ‘nominal terms’ are up, your cost for driving a mile is actually going down for the past decade,” McPheters said.
According to McPheters, the cost per mile for Arizona drivers was an average of 19 cents per mile on Thursday, March 10 (the day of our interview when gas was $4.32 per gallon) compared to 30 cents per mile when gas prices were at their highest in August of 2008.
Work time to buy a gallon of gas
There’s another calculation that may provide some perspective for Arizona drivers.
“It goes back to the notion of your ability to pay. How long do you have to work to buy a gallon of gas?” McPheters said.
The average hourly wage in Arizona was $29.00 in 2021, compared to $20.80 in 2008.
According to McPheters, the average worker in Arizona had to work 12 minutes to buy a gallon of gas in August of 2008 compared to working 8 minutes to buy a gallon of gas on Thursday, March 10.
What the future holds for gas prices
McPheters predicts gas prices will impact inflation because perception alone is powerful. It creates a cycle known as “inflation expectations.”
“It’s these expectations that can get us into an inflationary cycle,” McPheters said. “You’re thinking well, gas prices are going up and inflation is getting out-of-control. If you’re a business person, you’re thinking, perhaps I need to raise my prices to stay consistent with what’s going on with this business cycle,” McPheters said.
Additionally, consumers see rising gas prices and rising inflation and are likely to ask for a wage increase from their boss.
“The inflation expectation factor is huge here,” McPheters said. “As long as we’re in this situation, particularly with global oil prices, we’re going to see gas prices stuck at a high level and we’re going to see U.S. inflation stuck at a relatively high level as well.”
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