Gasoline prices are often very volatile with sharp swings in what American pay at the pump. As an example, the average price of gasoline dropped nearly 17% in 2020 from 2019.
Pricing for gasoline is a major category used by U.S. Labor Department’s Bureau of Labor Statistics (BLS) in calculating inflation but their volatility is also why they are excluded when the agency calculates core inflation rates.
The table below shows average annual prices of gasoline (all types) and those prices adjusted for inflation in 2020 dollars. It gives insights into how prices at the pump have changed over the years and how those prices compare when adjusted for inflation.
Inflation Adjust Gasoline Prices (1978-2020)
|Year||Average Annual Gas Prices (In Dollars)*||Average Annual CPI for Gasoline**||Gas Prices Adjusted for Inflation (In 2020 Dollars)|
*Data Source: U.S. Bureau of Labor Statistics: 12-Month Average Gasoline, all types, per gallon/3.785 liters in U.S. city average, average price, not seasonally adjusted.
**Data Source: U.S. Bureau of Labor Statistics: 12-Month Average Gasoline (all types) in U.S. city average, all urban consumers, not seasonally adjusted. CPI-All Urban Consumers.
How to Adjust Gasoline Prices for Inflation
In calculating gasoline prices for inflation, we’ll use an example that shows how to adjust gas prices from 1978 to 2020. First, consider these facts which are shown in the table above:
- The average price for gasoline in 1978 was $0.652 per gallon.
- The annual average CPI for Gasoline (all types) in 1978 was 51.900.
- The annual average CPI for Gasoline (all types) in 2020 was 194.130.
The following formula shows how to adjust gasoline for inflation:
1978 Gas Price x (2020 CPI for Gas / 1978 CPI for Gas) = Adjusted Gas Price in 2020 Dollars
Using the actual numbers:
$0.652 x (194.130/51.900) = $2.44