NEVADA STATE BANK PRESENTS
A Positive Outlook
BEYOND THE PRICE
AT THE PUMP
Currently in Nevada the average price
per gallon for regular unleaded gasoline
is about $3.80. Many of us remember
when gas prices were advertised in
cents, not dollars, and rising prices have
created anxiety over reaching a tipping
point where higher prices at the pump
will cause local consumers to sharply
curtail spending and visitors to make
fewer trips to Las Vegas.
Jeremy Aguero, Consultant
When analyzing rising gas prices, it is
important to consider the impacts of
price inflation. In 1990, the average price
of gasoline nationally was $1. 22 per
gallon. Adjusted for inflation, $1.22 in
1990 has about the same buying power
as $2.15 today. The U.S. average for all
grades of gasoline currently is about
$3.57 per gallon, suggesting that the real
increased cost of gasoline between 1990
and 2012 is roughly $1.42 per gallon.
Okay, so in real terms we are paying $1.42 more than we did in 1990 for every
gallon we consume. So, how much are we consuming?
In 1970, the United States averaged about 12.0 miles per gallon. By 1990,
that figure had increased to 16.4 miles per gallon, and the latest available
figure (2010) is 17.5 miles per gallon. Perhaps more importantly, the average
fuel efficiency for 2011 model passenger cars was nearly 34 miles per gallon,
suggesting households and businesses are getting more productivity out of
every gallon they consume.
A shift from 20 to 30 miles per gallon is remarkably significant. The typical
U.S. consumer drives about 12,000 miles each year. Without adjusting
for inflation or fuel efficiency, that typical consumer’s annual gasoline
expenditure would have increased nearly 300 percent between 1990 and
2012, with costs rising from $732 to $2,142. When adjusted for buying
power and increased efficiency, that increase is a much more manageable
11 percent during the same period, or from $1,290 to $1,428 annually.
An average western states household has 2.6 people and 2.0 vehicles. That
same household spends approximately $2,200 per year on gasoline, about
3.23 percent of its gross annual income ($67,600). Notably, this is almost the
exact percentage spent on gasoline in 1990 (3.15 percent), again suggesting
that the combination of engineering and driving efficiency as well as rising
incomes have largely offset higher gasoline prices.
Of course, fuel cost is an acute concern for visitor-dependent economies
like Las Vegas. That said, we should be equally cautious not to overstate
its impacts. A $1.00 increase in gas prices for a typical visitor driving from
Los Angeles to Las Vegas averages roughly $20 per round trip. While that
is $20 we would rather have spent in our local economy, it accounts for less
than 3.0 percent of a typical visitor’s expenditures. When you factor in the
number of visitors per car, that impact percentage drops below 1.5 percent.
Five-dollar-a-gallon gasoline is coming, but so are cars that get 100 miles
to the gallon. Continued advancements in transportation technology will
not only reduce U.S. dependence on foreign oil, but also free up billions of
dollars of household income, even at higher price points.
702.383.0009
nsbank.com