According to data from AAA, the average price of a gallon of gasoline in the United States currently stands at $2.74, which is up 22.3% so far this year and 35% off the low of $2.03 from late January. With that type of increase, you can imagine that some of the optimism on the part of consumers due to the price drop in the second half of last year will have been diminished, and we have seen that in recent data on Consumer Confidence. While the increase off the lows in prices at the pump is bad news for consumers at the margin, a little perspective is in order. The table to the right shows the YTD change for gasoline prices through 5/26 going back to 2005, while the chart below compares the change in gasoline prices this year to a composite of prices for all years since 2005. As shown, the good news is that this year’s 22.3% rally is actually the exact same as the average change through 5/26 that we have seen going back to 2005. In other words, this year’s increase has been nothing more than an average year for gas prices.
With gas prices and other commodities that trade on a seasonal pattern, in addition to looking at the overall price level it is also important to look at how prices have changed compared to a year ago. As the above example illustrates, the 22.3% in gas prices looks alarming at the surface, but when you dig a little deeper is not out of the ordinary. The chart below shows the year/year change in the average price of gasoline going back to the start of 2006. Even after this year’s rally off the lows, gas prices today are still 25% lower today than they were a year ago. In order to just get back to where they were last year at this time, prices at the pump would have to increase by nearly $1 per gallon. Anything is possible, but as the chart above shows, gas prices are currently entering the Summer ‘doldrums’ period of the year where they tend to move in a sideways pattern, before falling once the Summer comes to an end. In fact, in the ten years since 2005, there are only three years where the average price of gasoline increased between now and September 1st, with the largest increase occurring in 2005 when damage to refineries from Hurricane Katrina sent prices soaring 50 cents per gallon from 5/27 through the end of August.