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Feeling nostalgic for the days of 17 cent gas in 1931, 20 cent gas during WWI, the gas below 30 cents during the first half of the 1950s, or the $1.40 gas of the early 1980s? If so, you'd be suffering from "money illusion," the tendency to confuse nominal and real (inflation-adjusted) prices. Gas is cheaper today in real dollars than any of those past prices.

The chart above displays real gas prices going back to 1919 (EIA data here), showing that the current national average price of $2.12 is below the price of gas during the entire decades of the 1920s, 1930s, 1940s, 1950s, about the same as the average price during the entire 1960s, below the average price during the 1970s, and below the average real price of gas during the entire 1919-2008 period ($2.36).

Note: This analysis compares the current average retail price of $2.22 per gallon (according to AAA) to the average real gas prices (in 2008 dollars) annually for years from 1919 to 2007, for comparison purposes of what American consumers are paying today for gas versus what consumers paid for gas in the past. Also, the EIA data in 2007 dollars have been adjusted here to 2008

Gas is now available in Kansas City for as low as $1.49 per gallon, and the average retail price for gas is now $2.07 per gallon. Using real gas prices from the EIA (in November 2008 dollars), the chart above (click to enlarge) shows how today's gas prices compare to past prices.

The last time real gas prices (national average) were as low as $2.07 per gallon was almost four years ago in January of 2005, and the last time real gas prices were as low $1.49 per gallon was almost seven years ago in February of 2002 (see chart above). Gas prices in Kansas City are within 27 cents per gallon of the lowest-ever real gas price of $1.21 in February of 1999.

The drop in gas prices from $4.12 in July to the current $2.07 per gallon will generate annual savings of almost $300 billion for American consumers and businesses (each $1 fall in gas prices = $142 approximately billion annual savings). Talk about a tax cut!

Source: Real Price of Gas Approaches a Historic Record-Low