The economics of fuel prices and driving involve the kind of algebra most of us forgot after high school graduation, but the effects remain all too real. Here's the latest example: Americans spent a bigger share of their household income on gasoline in 2012 than at any point in the past 30 years — even though they were driving shorter trips in more fuel-efficient vehicles.
According to the U.S. Energy Information Agency, the average American household spent $2,912 on gasoline in 2012, or just under 4 percent of pre-tax income. That's just a tick higher than in the recession-hit 2008, and the highest level since the early 1980s. As the chart above shows, things were even worse in the late 1970s, when 5 percent of paychecks went into gas pumps.
If you think it's because people have stepped away from their computers long enough to start driving more, you'd be half-right; after a dip during the recession, Americans likely drove 2.95 trillion miles in 2012, just off the pre-recession high. But drivers have been racking up those miles in ever more efficient cars, with total gasoline sales in 2011 of 134 billion gallons reaching the lowest level since 2001.
The real culprit lies with higher gas prices, which the EIA says rose 26 percent in 2011 and another 3.3 percent in 2012 to a city average of $3.70 a gallon. That increase overwhelmed any gains from more efficient driving and outpaces the still sluggish growth in personal incomes. The agency expects gasoline prices to fall slightly this year and next as oil companies add new supplies — but the EIA's predictions can't anticipate the occasional hurricane or exploding oil rig that have sent prices soaring in years past. If you're buying a new car, and aren't sure how much to pencil in for gas costs, you'd be wise to assume more than what you're paying today.