What Gas Prices Meant for Americans’ Wallets in 2022
When adjusted for inflation, the average annual price of gas rose above $4 per gallon just five times in the 20th century — three in the 1930s, then again in 1980 and 1981. More recently, the average price topped $4 in 2008 and all four years between 2011 and 2014.
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That’s just 10 times in total, and only twice did the average price hit $4.50 and it never went higher than $4.56. So, when the national average price per gallon topped $5 this June, the crisis was truly historic.
Americans hadn’t had to deal with an inflation rate so high and gas prices so turbulent in decades, so they had to adapt — and adapt they did.
Naturally, People Sought Out Ways To Burn Less Gas
As early as March, before things got really bad, a AAA study showed that nearly six in 10 Americans planned to change their driving habits when gas hit $4 a gallon — and they kept their word.
By the time of the June price peak, drivers had brought the 1970s inflation-coping strategy of carpooling back into vogue and flocked to public transportation where they could.
Adam Smith, founder and CEO of Eco Energy Geek, understands their reasoning on a personal level. “The economic phenomenon of increasing fuel prices has had a substantial impact on my wallet, as it has for many other individuals,” he said.
But Adams also sees a silver — or maybe green — lining.
“However, as an eco-energy geek and looking on the bright side, the recent increase in fuel prices has had an overall beneficial impact on the environment, as it contributes to both a reduction in emissions and increased renewable energy use,” he said. “This is due to the fact that higher fuel prices incentivize more efficient use of resources, reducing consumption and associated emissions while also driving the development of alternative technologies, which are less intensive in terms of carbon output. Additionally, higher prices can lower demand for fuel, creating an economic disincentive for production, further reducing emissions.”
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Cuts Elsewhere Were Inevitable
Of course, there is only so much driving you can avoid, so people had to cut down on other costs, too. According to Andrew Gonzales, founder and president of BusinessLoans.com, fuel is what’s known as a price-inelastic good.
“In economic terms, price inelasticity means that a product is unlikely to see shifts in demand when the price increases,” said Gonzales. “This is largely because there are fewer alternatives or substitutes available on the market. In simple terms, people need gas — no matter what it costs. As the cost of gas increases, the consumer’s budget for discretionary spending, something they can control, is invariably going to decrease.”
Families handled the inevitable reduction of their discretionary dollars on a household-by-household basis, but when gas prices were highest, budgets across the country were forced onto a fuel-inflation diet nearly across the board.
“From canceling travel plans to forgoing entertainment and cutting back on saving and investing, it’s clear that people have had to make some difficult choices,” said Kyle Marquardt, CPA, a financial specialist and founder of Homestead Brands. “The higher and less predictable fuel prices have made it hard for many to plan ahead, meaning that budgeting for the future has been even more challenging this year.”
Businesses, Their Customers and Prospective Hires All Adapted
Volatile gas prices affect drivers most directly, but the things they buy in the stores they drive to arrive on trucks that burn the same fuel.
“It’s not just regular people who have been affected by the turbulent gas prices of 2022,” said Marquardt. “Businesses have also been affected, with many having to adjust their operations and pricing in order to survive. This has further added to the financial strain that people have been under this year, as companies have had to pass on their increased costs to their customers.”
But the ripple effects also hit job hunters, who were suddenly prioritizing lesser opportunities closer by.
“Distance from their home was often even more important to them than pay,” said Athena Kan, cofounder and CEO of Dreambound.com, which provides student training and employment pairing. “We saw people turning down jobs that paid several dollars an hour more because the job was 45 minutes away. The economics didn’t make sense for them. As a result, some employers hiring these entry-level roles started filtering people by who lived closest to the company. They often wouldn’t consider people who lived more than 15 miles away because it was unlikely that person would accept the job or stick around for a while.”
For Some, It Was a Teachable Moment
Minor reductions in emissions weren’t the only hidden benefit. Sky-high gas prices shook some people out of financial complacency and forced them to create and follow a spending plan for the first time.
“For some, it was a great experience,” said Spencer Reese, CEO of Military Money Manual. “They learned to manage their budgets during this hardcore rise of inflation. A few of my friends told me how inflation helped them to finally manage their otherwise exceeding expenses.”
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