The affordability index for gasoline fell by 23 points from its mid-winter value of 152, which was based on the University of Michigan Energy Survey taken in January 2016. Although by April pump prices only went up 13 cents, to $2.19 per gallon, that was enough to push the gasoline affordability index down to 129. Back in January, when the U.S. average retail price of gasoline dipped to $2.09 per gallon, American consumers felt that gasoline was more affordable than any time since our quarterly surveys started in October 2013.
Our affordability index is based on comparing the energy costs that consumers say they would find to be unaffordable to the actual costs — in this case, the average gasoline price — they experience when each quarterly survey is taken. As explained in our Overview of how the indices are calculated, an affordability index of 100 means that consumers believe energy prices would have to double (i.e., see a 100% increase) before they were considered unaffordable. In this context, “unaffordable” means that the energy cost has become so high that consumers feel they would need to change their day-to-day activities in some way. When consumers report that the price they find unaffordable is the same as what they currently pay, then the affordability index is zero.
Statistically speaking, the April 2016 gasoline affordability index, at 129 (±7), was not significantly different than the home energy affordability index of 135 (±11) that month, meaning that on an overall, national-average basis, American consumers believed that home energy and gasoline were equally affordable. In other words, those costs would have to more than double before most consumers would feel seriously pinched by what they pay for energy.
For home energy, little trend was found when comparing its affordability index in April to the previous ten quarters. In April 2016, consumers said that they spent an average of $159 per month on home energy bills. They also responded, on average, that they would find a monthly energy bill of $326 to be unaffordable. Although both reported home energy bills and the size of energy bill consumers say they would find unaffordable have fluctuated over the past two years, the ratio between the two has not changed in a statistically significant way. Therefore, the home energy affordability index has not changed significantly since we launched the U-M Energy Survey nearly three years ago.
The situation is, of course, quite different for gasoline, since pump prices have been much more volatile than home energy costs. But for going on two years now, that volatility has been downward and so has helped consumers at the wallet. Oil prices fell from averages around $100 per barrel in recent years through summer 2014 to the $40-$50 per barrel range since then. As a result, the U.S. average gasoline price dropped from levels above $3.50 per gallon through August 2014 to an average below $2.50 per gallon over the past year and a half.
In responding to our survey question about how high the price of gasoline would have to become before they found it to be unaffordable, consumers name a price in the vicinity of $5.50 per gallon. That’s more than double the recent pump price but well less than double what gasoline prices were over two years ago. As a result — and as shown in the chart above — the affordability index for gasoline has risen significantly, and April 2016 makes for the third quarter in a row that consumers view gasoline to be just as affordable as home energy.
For further detail on our latest affordability indices, download our short report in PDF format.