As gas prices continue to rise, drivers are angrily glaring up at pump price boards each time they fill up their tanks.
The average national price Tuesday was a little under $5.02 per gallon, according to AAA. Prices are even higher in some states. California had the nation’s highest average price of $6.44 a gallon.
But why does the price of a gallon of gas always end in 9/10 of a cent on stations’ price boards? No other retailers advertise their prices in fractions of a cent. Pennies are so worthless these days that people even throw them away or leave them on checkout counters rather than keep them in their pockets.
It may seem unusual, or even unnecessary, but there is a long history — and a subtle marketing strategy — behind gas prices ending in 9/10 of a cent.
David Paul Morris/Bloomberg/Getty Images
Why gas prices always end in 9/10 of a cent. Fuel prices at a Shell station in Menlo Park, California, on June 9 is pictured here.
Fractional prices first appeared in the early 20th century as states began implementing sales taxes on gas to help build and maintain highways.
At the time, the taxes were levied in tenths of a cent and gas stations passed them on directly to drivers, said Ed Jacobson, a former gas station owner who now runs the Northwoods Petroleum Museum in Three Lakes, Wisconsin.
But why not just charge a full cent? Well, at that time, the average cost of gas was around 10 cents a gallon. So adding a cent was a big deal, especially for drivers strapped for cash during the Great Depression. Instead of rounding up, which would have equated to a 10% increase, gas stations added the fraction of a cent instead.
By the 1950s, as the interstate highway system developed and gas stations began advertising their prices on big boards, most stations had moved to ending prices in 9/10 of cent, rather than a smaller fraction. This was a way to maximize sales, said Jacobson.
They’re “squeezing the buck as far as they can,” he said.
Setting prices ending in 99 cents, known as “just-below pricing,” is a common marketing tool used to make consumers feel like they’re getting a deal, said Robert Schindler, a professor of marketing at the Rutgers School of Business-Camden who researches retail prices and how shoppers process numbers.
“To consumers, a price such as 19.9 cents feels substantially lower than the price of 20 cents,” Schindler said.
Gas station owners now have computer programs that can help them set prices, said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices at 130,000 stations nationwide.
Many station owners would prefer their prices to be just a tenth of a cent below an even dollar amount, instead 9/10 of a cent above.
“A lot of the small station owners will tell you they pick a price by feel,” Kloza said. “They’ll tell you it makes a big difference if it’s $4.999 or $5.009. Drivers don’t want to see that $5.”
Although AAA’s national average price is now above $5 a gallon for the first time on record, the most common price for a gallon of regular gas is still at $4.999, according to OPIS data.
There have been occasional attempts to end fractional pricing for gas.
In 1985, Iowa outlawed the practice. “We don’t have a one-tenth of a coin,” an Iowa state senator reportedly said at the time. “It just bugged me for years.” In 1989, however, the state repealed the law and most stations returned to fractional pricing.
In 2006, Jim Davis, a gas station owner in Palo Alto, California, dropped the fraction of a penny and rounded his prices down. He said it cost him around $23 a day.
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Canva
The national average price for a gallon of regular gasoline broke records repeatedly during the first two weeks of May, according to the American Automobile Association. AAA is a privately held not-for-profit national member association and service organization with more than 60 million members in the United States and Canada. Its nationwide survey on gas prices found that, as of May 16, 2022, nearly every state has passed the $4 per gallon price.
Gas price fluctuations—up 30.8% per gallon in the U.S. from one year ago—are felt on a personal level, but they’re often influenced by sudden events and major policy shifts across the country and world. Natural disasters like hurricanes that shut down refineries along the Gulf of Mexico—where roughly half of America’s crude oil is processed—can drive prices up almost immediately. As during the First Gulf War with Iraq in 1990-91 or with Russia’s invasion of Ukraine in February, military conflicts involving oil-producing countries can also cause ripple effects worldwide.
The cost of crude oil, set by global supply and demand, is the country’s most significant determinant for gas prices. Currently, high seasonal demand, rebounding travel in the wake of COVID-19 restrictions, weak domestic output, and international sanctions against Russia—a massive player in the global oil market—are all contributing to ever-increasing prices at the pump.
Route-planning app Routific examined AAA data to see how gas prices have changed in every state over the past year, including in our nation’s capital in response to global events. States on the East Coast have seen the most painful price increases at the pump.
Canva
The national average price for a gallon of regular gasoline broke records repeatedly during the first two weeks of May, according to the American Automobile Association. AAA is a privately held not-for-profit national member association and service organization with more than 60 million members in the United States and Canada. Its nationwide survey on gas prices found that, as of May 16, 2022, nearly every state has passed the $4 per gallon price.
Gas price fluctuations—up 30.8% per gallon in the U.S. from one year ago—are felt on a personal level, but they’re often influenced by sudden events and major policy shifts across the country and world. Natural disasters like hurricanes that shut down refineries along the Gulf of Mexico—where roughly half of America’s crude oil is processed—can drive prices up almost immediately. As during the First Gulf War with Iraq in 1990-91 or with Russia’s invasion of Ukraine in February, military conflicts involving oil-producing countries can also cause ripple effects worldwide.
The cost of crude oil, set by global supply and demand, is the country’s most significant determinant for gas prices. Currently, high seasonal demand, rebounding travel in the wake of COVID-19 restrictions, weak domestic output, and international sanctions against Russia—a massive player in the global oil market—are all contributing to ever-increasing prices at the pump.
Route-planning app Routific examined AAA data to see how gas prices have changed in every state over the past year, including in our nation’s capital in response to global events. States on the East Coast have seen the most painful price increases at the pump.
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Routific
Every state and Washington D.C. saw gas prices increase over the last 12 months. While the national average is well above the $4 mark and hovered closer to $4.50 in mid-May, major cost discrepancies exist between states and within state borders. Living close to a regional oil hub can keep prices down. Meanwhile, living in a state with high fuel taxes like California can add up at the pump: Drivers in the Golden State pay 51 cents per gallon compared to those in Texas, who pay 20 cents per gallon.
Routific
Every state and Washington D.C. saw gas prices increase over the last 12 months. While the national average is well above the $4 mark and hovered closer to $4.50 in mid-May, major cost discrepancies exist between states and within state borders. Living close to a regional oil hub can keep prices down. Meanwhile, living in a state with high fuel taxes like California can add up at the pump: Drivers in the Golden State pay 51 cents per gallon compared to those in Texas, who pay 20 cents per gallon.
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SERGEY BOBOK/AFP // Getty Images
As the world’s largest country spanning the Eurasian landmass, Russia is a top exporter and the third-largest producer of crude oil. However, sanctions levied by the U.S. and the European Union in response to Russia waging war against neighboring Ukraine have reduced Moscow’s ability to sell crude, even as limited global supplies have paradoxically increased Russian export revenues. This is partially due to the sanctions stopping well short of a full international boycott.
Unlike the U.S. Congress, the EU’s 27 member countries cannot agree upon a total ban on Russian oil imports. Hungary, which remains heavily reliant on Russian imports, opposes the harshest restrictions. Recently the U.S. was importing just 3% of its crude oil from Russia, making a ban more than feasible. But other partner countries remain more reliant on Moscow for their supplies, including NATO member Turkey. Since its widely condemned invasion, Moscow has exploited these divisions within the EU, while selling crude at a discount to U.S. trade and security partners beyond Europe, including to India. Like many other commuters in Asia, Indians are driving more after the lifting of pandemic restrictions. The same trend is seen here in the U.S.
SERGEY BOBOK/AFP // Getty Images
As the world’s largest country spanning the Eurasian landmass, Russia is a top exporter and the third-largest producer of crude oil. However, sanctions levied by the U.S. and the European Union in response to Russia waging war against neighboring Ukraine have reduced Moscow’s ability to sell crude, even as limited global supplies have paradoxically increased Russian export revenues. This is partially due to the sanctions stopping well short of a full international boycott.
Unlike the U.S. Congress, the EU’s 27 member countries cannot agree upon a total ban on Russian oil imports. Hungary, which remains heavily reliant on Russian imports, opposes the harshest restrictions. Recently the U.S. was importing just 3% of its crude oil from Russia, making a ban more than feasible. But other partner countries remain more reliant on Moscow for their supplies, including NATO member Turkey. Since its widely condemned invasion, Moscow has exploited these divisions within the EU, while selling crude at a discount to U.S. trade and security partners beyond Europe, including to India. Like many other commuters in Asia, Indians are driving more after the lifting of pandemic restrictions. The same trend is seen here in the U.S.
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Routific
The rise in gas prices have many Americans feeling the pinch at the pump, and 62% of small business owners say that inflation is the biggest problem facing their businesses, according to a May 2022 survey from the National Federation of Independent Business. The survey also found that 99% of small business owners have seen gas prices negatively impact their business, with 77% citing it as the substantial contributor to their higher costs. In fact, nearly half of owners said that the cost of energy—which includes gas and electricity—is one of their top five business expenditures.
With no sign of gas prices dropping soon, business owners must make difficult financial decisions to stay afloat: raising prices for customers; switching to cheaper materials; reducing the quantity or volume of their goods and services; cutting delivery services or reducing their delivery vehicles’ range to save on gas; and postponing work trips, to name a few.
Meanwhile, for everyday Americans, many resumed the types of domestic travel and work commuting previously on hold due to COVID-19 restrictions. Vehicle miles traveled hit a 26-year low in April 2020 but rebounded to pre-pandemic levels by summer 2021. Increased demand has not been matched by increased supply, as U.S. crude oil struggles to recover from the operational impacts of COVID-19 and a record 8% decrease in production in 2020.
Routific
The rise in gas prices have many Americans feeling the pinch at the pump, and 62% of small business owners say that inflation is the biggest problem facing their businesses, according to a May 2022 survey from the National Federation of Independent Business. The survey also found that 99% of small business owners have seen gas prices negatively impact their business, with 77% citing it as the substantial contributor to their higher costs. In fact, nearly half of owners said that the cost of energy—which includes gas and electricity—is one of their top five business expenditures.
With no sign of gas prices dropping soon, business owners must make difficult financial decisions to stay afloat: raising prices for customers; switching to cheaper materials; reducing the quantity or volume of their goods and services; cutting delivery services or reducing their delivery vehicles’ range to save on gas; and postponing work trips, to name a few.
Meanwhile, for everyday Americans, many resumed the types of domestic travel and work commuting previously on hold due to COVID-19 restrictions. Vehicle miles traveled hit a 26-year low in April 2020 but rebounded to pre-pandemic levels by summer 2021. Increased demand has not been matched by increased supply, as U.S. crude oil struggles to recover from the operational impacts of COVID-19 and a record 8% decrease in production in 2020.
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Routific
Access to regional oil refineries can significantly impact gas prices. Nearly 43% of the nation’s crude oil is refined in Texas—home to the oil and gas-rich Permian Basin. That keeps Texans paying about 30 cents less per gallon than the national average. But in California, crude access is more geographically limited, keeping gas prices consistently higher. The recent per-gallon price hikes in response to volatilities like post-pandemic fuel demands or the Russian-Ukrainian war have been more sudden in the Gulf Coast region compared to West coast states that are used to higher costs.
Routific
Access to regional oil refineries can significantly impact gas prices. Nearly 43% of the nation’s crude oil is refined in Texas—home to the oil and gas-rich Permian Basin. That keeps Texans paying about 30 cents less per gallon than the national average. But in California, crude access is more geographically limited, keeping gas prices consistently higher. The recent per-gallon price hikes in response to volatilities like post-pandemic fuel demands or the Russian-Ukrainian war have been more sudden in the Gulf Coast region compared to West coast states that are used to higher costs.
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Canva
Three states—Connecticut, Georgia, and Maryland—temporarily suspended state gas taxes to alleviate the financial burden of rising fuel prices. Maryland’s tax holiday lasted only 30 days this spring, ending in mid-April. Georgia’s and Connecticut’s fuel tax suspensions will expire on May 31 and June 30, respectively.
In March, U.S. Senate Democrats introduced the Gas Tax Relief Act, which would suspend the federal fuel tax until January 1, 2023. The freeze would save the average driver roughly $2.76 per visit to the pump. The bill is still under review. What’s clear is that higher prices at the pump are hurting workers who don’t have the option to telecommute—especially those who work in sectors previously hammered by the pandemic, such as construction and hospitality.
This story originally appeared on Routific and was produced and distributed in partnership with Stacker Studio.
Canva
Three states—Connecticut, Georgia, and Maryland—temporarily suspended state gas taxes to alleviate the financial burden of rising fuel prices. Maryland’s tax holiday lasted only 30 days this spring, ending in mid-April. Georgia’s and Connecticut’s fuel tax suspensions will expire on May 31 and June 30, respectively.
In March, U.S. Senate Democrats introduced the Gas Tax Relief Act, which would suspend the federal fuel tax until January 1, 2023. The freeze would save the average driver roughly $2.76 per visit to the pump. The bill is still under review. What’s clear is that higher prices at the pump are hurting workers who don’t have the option to telecommute—especially those who work in sectors previously hammered by the pandemic, such as construction and hospitality.
This story originally appeared on Routific and was produced and distributed in partnership with Stacker Studio.
