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Page added on May 4, 2016

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Declining Energy Prices Lower the Cost of Living

Declining Energy Prices Lower the Cost of Living thumbnail
graph of U.S. consumer price index, energy subindex, and selected commodities, as explained in the article text

Source: U.S. Energy Information Administration, based on Bureau of Labor Statistics

Since June 2014, decreases in crude oil and natural gas prices have reduced household energy costs. According to initial figures from the U.S. Bureau of Labor Statistics (BLS), the chained consumer price index for urban consumers (C-CPI-U) decreased by 1.2% from June 2014 to February 2016. Lower energy prices had a significant impact on this decrease in spite of increases in the food and shelter components of the overall index, which represent larger shares of household expenses. The overall index edged up 0.6% in March as real crude oil prices rose 18.1%, while natural gas prices continued to decline.

Between June 2014 and February 2016, the inflation-adjusted Brent crude oil and Henry Hub natural gas prices declined 71% and 56%, respectively. Prices for these two benchmarks are significant, as changes in the Brent crude oil price often lead to changes in gasoline, diesel, and heating oil costs, while changes in the Henry Hub price affect natural gas prices and, to a lesser extent, electricity prices. The energy component of the C-CPI-U decreased by 35.3%, reflecting the influence of declining spot prices on household energy prices.

The energy component of the consumer price index tends to be much more dynamic than other major components of the index: during the same period, the food and beverage component of the C-CPI-U increased by 2.5%, while the shelter component rose 5.1%. The energy component rose 4.9% from February to March 2016, remaining 12.9% below its 2015 average.

U.S. consumer price index and major subcomponents, as explained in the article text

Source: U.S. Energy Information Administration, based on Bureau of Labor Statistics

The all-items C-CPI-U measures changes in the overall cost of living for U.S. households based on data from several surveys, including the Consumer Expenditure Survey. The C-CPI-U formula accounts for substitutions that consumers sometimes make in response to changes in relative prices. For instance, if the price of gasoline rises, which increases the cost of commuting by car, some households may switch to public transit or ridesharing options. The energy index includes fuel oil, motor fuel, electricity, and natural gas, which together made up about 8% of household expenditures in 2014, the most recent year of available expenditure data.

In constant 2015 dollars, average annual household energy expenditures peaked at about $5,300 in 2008. Between 2008 and 2014, average annual household energy expenditures declined by 14.1%. During this period, household expenditures decreased by 17.7% for gasoline, 25.1% for natural gas, and 28.3% for fuel oil. Electricity expenditures declined by a more modest 0.7%. EIA uses these average household energy expenditures to inform its outlooks for summer transportation expenditures and winter heating fuels expenditures.

graph of annual U.S. average household energy expenditure, as explained in the article text

Source: U.S. Energy Information Administration, based on Bureau of Labor Statistics

Principal contributor: Janice Lent

EIA



13 Comments on "Declining Energy Prices Lower the Cost of Living"

  1. PracticalMaina on Wed, 4th May 2016 2:18 pm 

    Increasing pollution increases healthcare expenditure globally, there I can make statements to. I like how on the pie chart they don’t mention healthcare, they should have broke it down further and showed how painfully small the average discretionary spending is for a family.

  2. Outcast_Searcher on Wed, 4th May 2016 2:38 pm 

    This isn’t surprising. Dramatically lower energy prices are good news for consumers and for businesses which use a lot of energy.

    This benefit to the overall economy likely more than balances the pain to the fossil fuel industry, especially the longer the low oil prices last.

    The many doomers who keep saying people in the first world can’t gas up their cars are ignoring economic reality. People in China and the US are buying record numbers of new cars. And they’re increasingly buying lower mileage cars as well.

    Bad news for the environment and AGW long term of course, but certainly good news for the economy in the short run and the exact OPPOSITE of the idea that first worlder’s can’t afford to put fuel in their cars (and thus we’re doomed short term, etc).

  3. Outcast_Searcher on Wed, 4th May 2016 2:41 pm 

    The one statistic in this article that really surprised me was the small decrease in the price of electricity. With the mandates in the shift away from cheap coal and all the regulations about some electricity needing to be green, etc., I would have thought this would have been tending to push electricity prices up on average.

    Is this effect due to less electricity being consumed doe to electric devices becoming more efficient (LED light bulbs,for example), or something else?

  4. Outcast_Searcher on Wed, 4th May 2016 2:43 pm 

    Oops — I should have said electricity expenditure had a small decrease, NOT price. My bad.

  5. PracticalMaina on Wed, 4th May 2016 2:45 pm 

    http://www.stltoday.com/business/local/southern-illinois-coal-plants-could-idle-after-electricity-price-drop/article_09606e76-d953-5d7e-a8a9-a1cfc0cbb675.html
    Right in the heart of coal country! With extremely low coal prices right now.
    So it is more expensive, and terrible for air quality.
    http://ravallirepublic.com/news/state-and-regional/article_d8f6c8fa-7d6b-5a77-9654-ce40624f6e7a.html

  6. marmico on Wed, 4th May 2016 4:19 pm 

    For the innumerate fuctards. Energy spending relative to total consumer spending, disposable income or wages is fucking low relative to the 70 year historical record.

    https://research.stlouisfed.org/fred2/graph/?g=4o3A

  7. makati1 on Wed, 4th May 2016 6:17 pm 

    Cost of gas … down a bit … for now.

    Cost of housing, food and meds way up and up and up … forever.

    More bullshit for the masses.

  8. adonis on Wed, 4th May 2016 8:03 pm 

    absoluteley if you like cruising in your car

  9. dave thompson on Wed, 4th May 2016 10:08 pm 

    Yes the cost of gasoline and the cost of nat gas for heating is down for me but, that is about it. The only real way to cut costs is to spend as little as possible only on things you need, wherever possible. Stay home read a book, SHUT IT DOWN!

  10. Davy on Thu, 5th May 2016 7:00 am 

    “Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession”
    http://wolfstreet.com/2016/05/04/freight-rail-traffic-plunges-aar-april-report-photos-idled-engines-transportation-recession/

    “292 Union Pacific engines idled in Arizona Desert”

    “Total US rail traffic in April plunged 11.8% from a year ago, the Association of American Railroads reported today. Carloads of bulk commodities such as coal, oil, grains, and chemicals plummeted 16.1% to 944,339 units. The coal industry is in a horrible condition and cannot compete with US natural gas at current prices. Coal-fired power plants are being retired. Demand for steam coal is plunging. Major US coal miners – even the largest one – are now bankrupt. So in April, carloads of coal plummeted 40% from the already beaten-down levels a year ago.”

    “The AAR report: Rail coal traffic continues to suffer due to low natural gas prices and high coal stockpiles at power plants. Coal accounted for just 26% of non-intermodal rail traffic for US railroads in April 2016, down from 36% in April 2015 and 45% as recently as late 2011.”

    “Only five of the 20 commodity categories saw gains. Of the decliners, coal was the biggest. But petroleum products also plunged 25%, and grain mill products dropped 7%. Even without coal, carloads were down 3% year-over-year. But it’s not just coal. In April, loads of containers and trailers fell 7.5% year-over-year to 1,028,460 intermodal units. They transport goods for retailers and wholesalers. They haul parts, components, and assemblies for manufacturers. They haul imported goods from ports and borders to different destinations across the country, and they haul goods to be exported to the ports and borders. They’re a measure of the real economy. For the first 17 weeks of the year, total rail freight fell 7.8% from the same period a year ago, with carload traffic down 14.3% and intermodal down 0.8%.”

  11. Boat on Thu, 5th May 2016 9:56 am 

    “The one statistic in this article that really surprised me was the small decrease in the price of electricity. With the mandates in the shift away from cheap coal and all the regulations about some electricity needing to be green, etc., I would have thought this would have been tending to push electricity prices up on average.”

    The fracking led nat gas price prices are leading the shift from coal to cheaper electricity. CHP, electric motors, led lighting along with the big push in building efficiency is keeping demand in check.

  12. penury on Thu, 5th May 2016 11:34 am 

    “Declining Energy Prices lower the Cost of Living”? A conundrum to be certain. If one were to look at the problem from both sides a person might question whether this is a sustainable situation of a blip on the road to ruin. Will a loss of energy reduce the price of supplying Food? shelter? heat? goods and services? Au Contraire mon frere. Production requires X amount of energy, if your slaves do not show up, you must supply energy from another source.

  13. oracle on Fri, 6th May 2016 6:05 am 

    CPI calculations are BS. Who among “urban consumers” believe that their costs decreased 1.2% since 2014?

    And who believes that “…during the same period, the food and beverage component of the C-CPI-U increased by 2.5%, while the shelter component rose 5.1%.”?

    Here’s the heart of the lie: “The C-CPI-U formula accounts for substitutions that consumers sometimes make in response to changes in relative prices. For instance, if the price of gasoline rises, which increases the cost of commuting by car, some households may switch to public transit or ridesharing options. ”

    Keep in mind that our tax dollars pay for these lies the government tells us.

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