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May 01, 2008

Are gas prices at an all-time high?

Gas prices just seem to keep going up and up and up. Surely we're at record levels for pump prices, but for an economist, there may be more to judging the level of gas prices than what we see. So go ahead, convince us we're not paying record prices. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, one of the first things we teach in beginning economics class is that you can't compare dollars today to dollars in the past. And I think most people know this, that is, the purchasing power of a dollar changes, simply because most things tend to go up in price over time. So to judge the level of an individual price like gas, you have to ask, has it risen faster than the average of all other prices? And when we look at this and look at gas and make this adjustment, we certainly see that gas prices have risen since 2000, although they actually rose less than other prices, so effectively they were going down from the early 1980s to about 2000. So anyway, when we make the adjustments to say, have gas prices risen faster that all other prices and, therefore, are we at a record, the bottom line is that today's gas price would have to be about $3.40 a gallon to set an all-time record high, which was set in 1981. And we're just about there. So I think you can fundamentally and economically correctly say, yes we are close to if not at an all-time gas price high."

Posted by Dave at May 1, 2008 07:57 AM