In addition to inflation reaching its highest level in four decades in March and remaining close to that mark in April, the increase in gasoline prices has contributed to a feeling of economic stress and frustration over the Biden presidency. According to Gasbuddy.com, the average national gas price surpassed the $5 mark on Thursday for the first time in history. AAA gave the national price as $4.97.
But there are plenty of pundits and economists claiming that prices aren't that high once you factor in inflation. “When accounting for inflation, however, today's prices are still about 20% below the 2008 peak on the national level and 7 percent below the California record that year,” Michael Hiltzik of the LA Times wrote in an article published in March. Similar opinions are heard on television as well as on social media.
Here's a sample from Kiplinger's last week's issue: “In nominal terms, today’s gas prices are far higher. According to travel website AAA, the current national average price of regular unleaded is $4.72 per gallon. Back in the summer of 2008, right before the financial crisis sent the economy into a deep recession, prices peaked at $4.11. So, we’ve already blown past that old record. But if you adjust for inflation since 2008, we don’t have the highest gas prices ever—yet. According to this inflation calculator from the Bureau of Labor Statistics, $4.11 in July 2008 is equal to $5.40 in today’s dollars.”
The issue is that, for the purposes of evaluating whether gas prices are at a record high, adjusting for inflation in this way is not very useful. When you take one product and compare it to the broad price index, you are seeking to discover whether the item has risen or fallen in price more or less than everything else. So the inflation-adjusted gas price simply tells us that gas is way up but not quite reaching a record because all the other prices are also rising.
It's not the whole story. People are not unhappy because they believe that the price of gas is rising at an excessive rate compared to other prices. It's not a discussion about the fact that gas prices are rising unjustly in comparison to, for instance, grocery prices. People are upset that gas prices are increasing along with all the other prices. People are feeling the pressure.
If you are looking to adjust the cost of gasoline in relation to changes in time, do not use other price indexes. Make use of wages. The wage-adjusted price of gas provides the full picture. It is clear that we're not paying gas prices that are significantly higher than the 2008 wage-adjusted cost. In reality, we're trying to catch up with 2014.