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Why gas prices aren’t actually at record highs

In this article:
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Yahoo Finance's Rick Newman explains that while gas prices are high, they haven’t actually hit record levels when adjusted for inflation.

Video Transcript

- Now let's bring in Yahoo Finance's Rick Newman with more context on that. Rick.

RICK NEWMAN: Well, that's certainly the-- the price that people see and the price that people pay. We're all comparing this to the last time gas prices were that high, which was in July 2008 when they hit right around $4.17. That was the highest on record. So they're now back at that nominal level. But it's not complicated to adjust this for inflation. And if you do that, then we would actually have to see gas prices of about $5.25 to have a new high in terms of an inflation-adjusted average.

Now, $4.17 is still pretty expensive. And I wrote about this today. And I've got people writing in and saying it doesn't matter about adjusting for inflation. It still sucks. This is still too expensive. And they blame whoever they think is responsible. That's all true. But just for context, you know, our buying power is more than it used to be. And we've also had better wage growth than inflation since 2008. So the average worker has gotten ahead. So it's not quite as bad as the headlines make it sound. It could get that bad, but right now it's not quite there.

- And Rick, with crude oil prices still hovering near 14-year highs, where are gas prices at the pump headed next?

RICK NEWMAN: You know, President Biden got off the plane on a trip to Texas. And somebody asked him that question. And he said, they're headed higher. And somebody said, what can you do about it? And he said, there's not much I can do. It's Putin's fault. So I think Biden's got it about right. I think we're going to go higher from let's say it's-- let's call it $4.20 right now. We could see $4.30, $4.40.

I mean, gas prices track oil prices pretty directly with about a two-week lag. So you can just look at where oil prices are going to tell you where gas prices are going. So when I last checked, we had about a 3% increase in oil prices today. That was not that bad considering that Biden today said he's now banning imports of Russian oil. I guess markets had probably anticipated that. That's not a lot of oil into the US market, but it's a little bit on the margin.

So oil prices went up a little bit, so gas prices are going to follow that up. Maybe this is the peak. If this is about as bad as it gets, then good news for drivers is that US drillers have a really strong incentive to produce more oil. They're going to make a good profit with oil prices where they are. So they're probably going to start producing more. And that will actually bring prices down in the-- I don't know-- maybe-- maybe months it might take for that. So in the meanwhile, we've just got a high-- high gas and oil prices. And without a doubt, this hurts consumers.

- Yahoo Finance's own Rick Newman. Excellent context there, Rick. Appreciate it.