Gasoline Affordability

Over the past year, Americans have felt that gasoline has become less affordable on average. This shift corresponds to the rise in price of gasoline, which was up 35¢ per gallon — an increase of 14 percent — for the first half of 2018 compared to the same period in 2017.

Even though pump prices have risen, there has been no significant change in the price that consumers tell us they would find unaffordable in the sense of feeling that they would have to change the way they get around. As seen in the chart below, that price has been hovering just above $5 per gallon for the past year. 

The gasoline price that consumers consider unaffordable fell from an average of about $5.70 per gallon over the first year of the Energy Survey, when the national average gasoline price was $3.56 per gallon, to $5 per gallon in 2016, reflecting the drop in gasoline prices that occurred in the second half of 2014. It has now inched back up to an average of $5.11 per gallon over the past survey year (ending in April), when gasoline prices themselves averaged $2.62 per gallon. According to the U.S. Energy Information Administration (EIA), gasoline prices reached a nationwide average of $2.99 per gallon in April, the month of our most recent survey. The latest EIA data show it slipping by only 2 cents, down to $2.97 per gallon, as of June.

Because the affordability index is based on the ratio between the price that consumers say they’d consider unaffordable and the actual price at the pump, it can be quite sensitive to changes in gasoline prices. That’s why the latest gasoline affordability index of 83 (±6), based on the U-M Energy Survey spring (April) 2018 sample, is down so significantly from its value of 114 (±7) last spring.

In other words, the gasoline price has gone up, but the price that consumers consider unaffordable has not changed much. Consumers are therefore closer to their thresholds of “pain at pump.” The affordability index is scaled so that a value of 100 means that gasoline prices would have to double (i.e., increase by 100%) before reaching that level of consumer discomfort. An affordability index of zero means that consumers already find it unaffordable, a situation reported by less than 3% of consumers on average.

Americans on average remain happier about the price of motor fuel than when we launched the U-M Energy Survey in fall 2013. The gasoline affordability index was well below 100 for the first five quarters of the survey, when it averaged 62, quite a bit lower than the most recent index of 83.

Consumers are certainly comfortable enough with gasoline prices that the American Automobile Association (AAA) is predicting record travel over this year’s July 4 holiday period. Moreover, with the average new vehicle now more fuel efficient than it was a decade ago, sales have continued to shift back to SUVs, pickups and other light trucks, which now comprise two-thirds of the new vehicle market based on trade statistics.