The U.S. Bureau of Labor Statistics (BLS) released its Consumer Price Index report for 2013 today.
Overall, the BLS estimates inflation at 1.5 percent. But, digging into the report’s categories shows that the greatest inflation was seen in the electricity sector where costs went up 3.2 percent over the year.
Rising electricity costs are likely due to the current administration’s so-called “war on coal” exacerbated by a colder than normal winter. Coal generates about 37 percent of America’s electricity and, as coal-fired power plants are shut down, the simple laws of supply and demand dictate that costs for electricity rise.
From the report:
“The electricity index rose 0.4 percent, its fourth consecutive increase. The only major energy component index to decline was the index for natural gas, which fell 0.4 percent, its third consecutive decrease.”
Natural gas is used to generate about 30 percent of America’s electricity and this share is increasing, so demand for natural gas is rising. But natural gas prices fell, the sole energy component to do so. Falling prices for natural gas in the face of increasing demand means that supplies of natural gas are rising to meet mostly due to the application of technology (fracking) to boost supply.
Supply and demand driving prices and in the case of electricity we see that federal policies are driving an increase of electricity inflation while the free market is driving a decrease in the cost of natural gas.
As the administration and its Environmental Protection Agency (EPA) continue to press to shut down coal power plants, expect the cost of electricity to continue to rise, forcing average Americans to spend more to heat and cool their homes while discouraging electricity-intensive manufacturing.
Ideas have consequences.