Wednesday’s Consumer Price Index Summary for October published by the U.S. Bureau of Labor Statistics showed record 6.2% inflation over the last twelve months, the highest rate since 1990. This spike was largely driven by energy prices ,which increased by 30% in the last year with fuel oil rising 59.1%, gasoline 49.6% and piped gas 28.1%. Of all energy sector segments electricity has seen the least increase with 6.1% inflation.
As winter approaches in the United States energy prices will play an important role in the household economy of American citizens heating their homes. The US Energy Information Administration expects the coming winter to be slightly colder than last year in much of the United States. Approximately 50% of all American heat their homes with natural gas, 41% with electricity, 5% with propane and 4% with fuel oil.
“An unprecedented combination of factors is roiling world energy markets, rekindling the memories of the 1970s energy crisis and complicating an already uncertain outlook for inflation and the global economy,” wrote IMF experts in October. “Our expectation is that these prices will revert to more normal levels early next year when heating demand ebbs and supplies adjust. However, if prices stay high as they have been, this could begin to be a drag on global growth.”
Brent crude prices recently reached a seven-year high above $85 a barrel and coal prices are at their highest level since 2001.
“Energy supply, in fact, has reacted slowly to price signals due to labor shortages, maintenance backlogs, longer lead times for new projects, and lackluster interest from investors in fossil fuel energy companies,” continues the IMF report. “Natural gas production in the United States, for example, remains below pre-crisis levels.”
The IMF recommends government action to prevent power outages in the case of utilities curtailing production when it ceases to be profitable and warns of possible further disruption of global supply chains due to blackouts.