Prices for gas are either increasing or decreasing, depending on the method of calculation used.
Gas Prices: The Real Deal
The current president, old Donald Trump, has been trumpeting about gas prices being way down. But let's bust his bubble right away - his "imaginary gas price" is nowhere close to the reality. CNN called it out, labeling it as such. Trump claimed that three states had gas prices plummeting to $1.98 a gallon. Inaccurate!
While it's true that gas prices are lower year over year and higher compared to the start of the year (okay, a normal seasonal trend), the overall picture isn't so rosy. Even though this dip is a win for consumers, it might be a worrying sign for the economy.
Cruising Through the Price Landscape
According to AAA's gas price monitor, not a single state, not even our nation's capital, has an average gas price of $1.98 a gallon, not even for regular gas. As of May 4, 2025, Mississippi held the title with the lowest per-gallon price at $2.655.
The prices went up from there, with states like Alabama, Arkansas, and Louisiana following closely. Just to give you an idea, you can find mid-grade, premium, and diesel at even higher prices.
Check out this graph to understand gas prices over the years
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Scroll down to see gas prices in historical context
Price Changes: A Deeper Dive
This graph can be a tad misleading. Gas prices have climbed a lot in nominal terms, which means that, without any adjustment for inflation, it seems that gas is generally much more expensive than it ever has been in the past. However, by dividing gas prices by the Consumer Price Index for energy, we get a more accurate comparison in constant dollars. Here's the FRED graph with that modification:
Historical Gas Prices Adjusted for Inflation
Income: A Long Way Behind
Gas prices are essential for millions of people, as it can be a significant expense. Unfortunately, the sad truth is that median household income has trailed inflation over the past 25 years. Even if current national prices are relatively low compared to history, it still puts a strain on many families.
Recently, Prices Have Climbed... But This Isn't Unusual
There are multiple ways to look at price changes. Considering recent changes, prices rose from $3.018 in December 2024 to $3.121 in February. Then, prices fell a bit in March and grew to the average of $3.165. In May 2024, the price was $3.603. So Trump was half-right - there has been a year-over-year drop, but nowhere near the number he claimed.
The recent climb in price is normal for a couple of reasons. One, people tend to drive more during the summer, leading to increased demand and consequently higher prices. Two, the formulations for gas require more additives by government regulations to prevent increased smog and emissions during the spring and summer. Formulation changes alone can hike prices up to 15 cents a gallon, while increased demand adds between 5 to 15 cents per gallon.
The Year-over-Year Drop Isn't So Normal
This isn't a cyclical event but more likely an economic response. Markets determine prices through the expectations of investors and buyers who are making bets about the future of the economy and how much demand there will be for energy. The more pessimistic the view, the less expected demand and lower prices.
This economic downturn is the bad news about lower gas prices in the long run. It's yet another sign that the economy isn't in the best shape.
- Despite Donald Trump's claims about gas prices, not a single state's average gas price is as low as $1.98 a gallon, as per AAA's gas price monitor in May 2025.
- The median household income hasn't kept pace with inflation over the past 25 years, making gas prices a significant expense for many families, even though they may be lower compared to history.
- The year-over-year drop in gas prices is not typical and could be an sign of an economic downturn, as it's usually the expectations of investors and buyers that determine prices.
- The recent climb in gas prices in the spring and summer is not unusual due to increased demand and the need for more additives in gas formulations.
