The federal government's latest Consumer Price Index report found that the overall CPI, for all consumer goods and services, rose 2.9 percent over the twelve months ending this June. In other words, the American consumer experienced inflation of around three percent.
The report also found that the CPI for one of the hundreds of categories of consumer goods and services that the government tracks – electricity – fell during the same period. The price of electricity, otherwise known as electric rates, fell by 0.1 percent.
In other words, the American consumer experienced inflation of around three percent. While the consumer generally saw virtually no change in electric rates.
This means the real price of electricity, “real” when we figure in inflation, has fallen substantially.
Look at it this way. In the last year, the price of all consumer goods and services, generally, went up three percent. Spend a dollar and you now get about three percent less of stuff, whether that’s health care or housing or hamburgers. But spend a dollar on electricity and you get the same amount of stuff — kilowatt-hours in this case — as you did last summer.
Inflation made your dollar less valuable, in general. But the lack of inflation in electric rates kept your dollar’s value in using electricity.
Imagine if inflation is a hundred percent over some number of years. Your dollar’s value would halve. But if the price of one good or service like electricity remained constant during those years, then consumers would feel like the relative or real price of it had halved.
As inflation increases and electric rates remain stable, electricity really does become less expensive.
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Steve Mitnick, Editor-in-Chief, Public Utilities Fortnightly, and President, Lines Up, Inc.
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