Energy has been a drag on inflation in recent months, as gasoline and heating-oil prices have fallen. But that could change going forward, as gasoline prices have already picked up this month, and could keep rising into March.
Overall oil prices are higher, too, rising about 5% in February on escalating violence in the Middle East and some signs of a rebound in demand.
Energy prices fell 0.9% in January from December levels, according to the Bureau of Labor Statistics. Energy was one of the few drags on inflation at a time when other expenses like housing have continued to rise. Inflation rose 3.1% in January, a faster pace than economists had expected. Core inflation excluding food and energy rose 3.9%. The “hot” reading caused stocks to fall, with the
S&P 500
falling 1.1%.
Energy prices look poised to rebound going forward. West Texas Intermediate crude prices, the U.S. benchmark, have risen above $77 per gallon from about $74 at the start of the month. The average gallon of gasoline sells for $3.23 today, up from $3.07 a month ago, according to AAA. Prices could keep rising as refiners switch out their “winter blend” gas for a more complex and expensive summer blend, and as driving demand picks up.
Of all energy products, gasoline holds the largest weight in the inflation calculation. But electricity isn’t far behind, and electricity prices have stayed stubbornly high even though the largest source of electricity generation—natural gas—has gotten cheaper in recent weeks. Electricity costs were up 1.2% in January from December levels, and are up 3.8% from last year’s levels. Electricity rates can be “sticky” in part because they reflect the cost of things like transmission and infrastructure upgrades. Utilities don’t often pass along price decreases to consumers.
Higher energy prices may end up filtering into the prices of other goods, too. When diesel prices rise, they can make shipping costs more expensive for retailers, and lead to the price of goods rising.
Write to Avi Salzman at [email protected]
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