Gas Prices in the Headlines Again

Gas prices are showing up in the headlines once again this week, but this time for what most would consider the wrong reasons.  After a record streak, where the national average price of a gallon of gas went 123 without an increase, gas prices have been on the rise.  It has now been 28 straight days since the national average price of gasoline had a one day decline.  During that period, prices at the pump have risen 27 cents, or over 13%, to $2.30 per gallon.  In the wake of the increases, there has been a decent amount of commentary suggesting that this recent increase in gas prices is a bad omen for the consumer, who, judging by the economic data didn’t seem to be see any significant positive impact from lower gas prices in the first place.

With respect to gas prices, lower prices are always going to be better for the consumer’s pocketbook, so any increase in prices is less attractive than a decline.  That being said, it is important to keep in mind that these prices are extremely seasonal.  The chart below shows a composite chart of the annual pattern for gas prices.  As shown, prices typically rise in the five months leading up to Memorial Day, level off in the summer, and then start to decline around Labor Day through late December.

Comparing this year’s YTD change in gas prices to this point in prior years going back to 2005 shows that even after the recent jump, prices at the pump are up less year to date (2.72%) than average (5.87%).  Additionally, going back to 2005 there are only three years where the national average price of gasoline was lower on 2/23 than it is now.

Given the seasonality of gas prices, rather than compare current prices to where they were a week or month ago, a more useful comparison is to look at year/year changes.  By this measure, prices at the pump are down 33% from where they were at this point last year.  The only period where we saw a larger y/y decline in prices was in late 2008 through the first half of 2009.  To put current levels in persepctive, just to get back to last year’s level the national average price would have to jump more than a $1 per gallon (~50%).  While the recent jump is gas prices is not preferable, there’s still a ways to go before the recent uptick in gas prices should be considered a major concern.