January's PPI report

The Consumer Price Index report for January showed that year-over-year electricity price increases, 11.9 percent, are still outpacing general inflation, 6.4 percent.

But February 14's Producer Price Index report for January showed that year-over-year natural gas prices paid by electric generators decreased by 3.3 percent. This reflects the dramatic drop in natural gas prices that’s going on right now in the commodity markets. 

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This is big because natural gas price changes in those markets are reflected in electricity prices, albeit with a time lag. When gas prices start rising, electricity prices start rising too, though a few months later. Conversely, when gas prices start falling, electricity prices start falling too, though again a few months later.

Since early December, natural gas prices have been plunging in the commodity markets. On the fifteenth of December, the price was $6.97 per million BTU. Yesterday the price was $2.46. That’s a sixty-five percent drop in two months’ time.

Since early April of 2021, nearly two years ago, natural gas prices have been higher — usually much higher — than where they are now. A year ago, when Russia’s invasion of Ukraine began, the price was $5.23 per million BTU. Gas prices have been consistently higher during this terrible war — once nearly reaching $10 — until these last few weeks.

As we get deeper into 2023, it would not be a surprise to see electricity price increases moderate as electric generators and their wholesale markets are able to integrate commodity gas prices in their cost structures.