Energy Boosts Everyday Prices

Prices Over the Long Term
The Inflation We Feel vs. the Inflation Reported
Price Changes Over Different Periods

As temperatures soared in June, so did Americans’ electric bills. Costlier household utilities drove the prices of frequently purchased items to their highest point in ten months, according to AIER’s Everyday Price Index.

These rising prices contributed to the EPI’s 0.5 percent increase in June following a 0.3 percent uptick in May. The Consumer Price Index, the government’s broader measure of prices, also increased 0.5 percent on a seasonally adjusted basis. (See Charts 1 and 2 for long-term and month-by-month comparisons of the EPI and CPI.)
 
Household fuel, utilities, and supplies prices jumped 2.3 percent last month—the category’s biggest monthly increase since July 2008. Electric bills, which make up 54 percent of the average American’s expenses in this category, drove the increase as consumers cranked up their air conditioners.
 
Natural gas prices posted their third consecutive monthly increase in June, rising 0.2 percent. While prices in this category fell between 2008 and 2012, sustained economic growth reversed the trend this year. Industries used about 4 percent more natural gas in the first half of 2013, compared with the same period in 2012.

Natural gas prices are likely to continue increasing next year. Since onshore production costs have gone down, the U.S. is importing less foreign natural gas. The resulting reduced supply of natural gas may lead to further price increases in the future.

The motor fuel price index also increased 0.5 percent in June, putting some drivers on high alert. At press time, the average price of regular gas is $3.64 a gallon, compared to a five-month average of $3.58.

The most recent upswings have been propelled by rising crude oil prices. In the first week of July, WTI spot price went up by $9.20 to $103.09 per barrel, and Brent spot went up by $7.10 to $107.46 per barrel.

Luckily, a long-term price escalation is unlikely to follow. Gas prices tend to be volatile, and recent fluctuations are fairly typical for this market. Moreover, several factors are keeping a lid on prices at the pump. Gas futures contracts remained relatively stable through June and mid-July, even as demand rose. Meanwhile, refineries increased their capacity this year, helping to compensate for other natural gas facilities that had closed down.

Although seasonal factors were largely responsible for everyday price increases in June, the EPI’s overall trend is heading upward as well. The prices of frequently purchased goods and services have risen 3.2 percent so far this year. This means even as the weather cools, inflation may keep cooking. 

About the EPI

AIER’s Everyday Price Index (EPI) measures the changing prices of frequently purchased items like food and utilities. We do this by selecting the prices of goods and services from the thousands collected monthly by the Bureau of Labor Statistics in computing its Consumer Price Index. The EPI basket contains only prices of goods and services that Americans typically buy at least once a month, excluding contractually fixed purchases such as mortgages. Our staff economists weight each EPI category in proportion to its share of Americans’ average monthly expenditures. In order to better reflect the out-of-pocket prices that consumers experience on a daily basis, the EPI does not seasonally adjust prices.

Prices Over the Long Term
The Inflation We Feel vs. the Inflation Reported
Price Changes Over Different Periods