I went to Hilton Head again this weekend. It was wonderful. I relaxed and did absolutely nothing on Friday but sit on the beach and listen to music. Had good discussion with Charlie. Watched baseball with Nick. Julia studied her Bar Review materials. Great time. But on the drive down, I paid over $4.00 per gallon for fuel for the first time. In doing so, I think I am the only American that doesn't mind it a bit.

Fuel is in theory at "record highs" right now, but my question is "record highs" compared to what? The 1990s? The 1970s? Let's put this in perspective.

When adjusted for inflation, fuel prices are just $.25 more per gallon than they were in 1979. While this still constitutes a "record high" label, it isn't quite the burdening number most of us think it is.

The chart below shows fuel prices from 1979 to 2008. Look how the red line (actual price paid) jumps significantly higher, but when adjusted for inflation, it stays relatively the same.

Think about the price you paid for your house in 1982. Doesn't your current house look ridiculously expense when in comparison to your 1982 house? It's the same with fuel.




The problem lies in perception. For some reason we bought the idea that the fuel prices of the late 90s were somehow the norm, instead of an anomaly. I remember one time filling up at a Speedway station in Fort Wayne, IN for $.76 in the summer of 1999.

But these fuel prices were largely due the Asian market crash of the 90s (as well as the tech burst) and should never have been thought of as normal. In fact, they were further from normal on the low-side, as fuel prices are now on the high-side.

Now we all know I am super anal retentive. So I went through my records and pulled up every¹ fuel purchase I made from 2002 to 2008. When adjusted for state differential and inflation, I am paying approximately $2.00 more a gallon now when compared to 2002. So it is easy to see why it "feels" bad. But in 2002 we were still $.25 below the adjusted norm of 1979.




So does this mean fuel prices are where they should be? No. I am not going to say that. It is slightly high. But these things will correct themselves over time. What I am saying is that for most of us out there, the pain at the pump is more a mental problem than it is an actual budget problem.

And heck, at least we aren't in Europe paying over $9.00 per gallon for fuel. We have much to be grateful for.

P.S. For those who want the charts of date you can find them here: Fuel Prices Workbook. And if you really want to see an example of my anal retentiveness, you can see my Fuel Mileage Worksheet for my Honda Civic.