Electric Rates Losing Ground to the CPI

Deck: 

December CPI up 0.7 percent, while electric rates down 1.2 percent

Today in Fortnightly

The Labor Department reported last week the Consumer Price Index, the CPI, for December 2015. 

The CPI for all goods and services increased 0.7 percent during the twelve months through December. That's a low rate of inflation. The CPI for electricity specifically decreased 1.2 percent during the same twelve months. That's a medium rate of deflation.

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Electricity prices have generally been losing ground to the prices of all goods and services. For example, the CPI for electricity in December 2015 was 7.4 times higher than in December 1952 (the first year of the data). So electric rates are much higher, right? 

But the CPI for all goods and services in December 2015 was 8.9 times higher than in December 1952. This means electric rates have actually fallen when inflation is counted.

Care to look at a more recent trend? Since December 2008, the CPI for all goods and services has increased 12.5 percent while the CPI for electricity has increased 7.2 percent. In effect, electricity is becoming cheaper for consumers.

The CPI for electricity is just 2.9 percent of the CPI for all goods and services. This means, of all consumers' payments, 2.9 percent pays for electric bills. 

Electricity is a smaller percentage of the Commerce Department's measure of consumer expenditures, down around 1.5 percent. This is because some consumer expenditures are not consumers' payments, but instead payments by government, institutions and companies on behalf of consumers. 

Close to electricity's share of the CPI for all goods and services are categories like gasoline, telephone services, and motor vehicle insurance. In other words, consumers generally spend about the same amount on gasoline, telephone services, and vehicle insurance as they do on electricity. 

Gasoline is 3.3 percent of the overall CPI. Telephone services are 2.5 percent, but 3.1 percent with Internet services included. Vehicle insurance is 2.4 percent. Again, electricity is right there, at 2.9 percent. 

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Stay tuned. Later this week, Today from Public Utilities Fortnightly will break down the CPI-electricity by region.

Steve Mitnick, Editor-in-Chief, Public Utilities Fortnightly

E-mail me: mitnick@fortnightly.com