Two Ways That Volatile Energy Costs Fuel Inflation
Energy prices can fluctuate dramatically based on changes in supply or demand. According to the Consumer Price Index (CPI), energy prices across the economy fell 2.5% in October and 2.3% in November, following a surge of 7.2% over the previous two months. Gasoline prices fell 5.0% in October and 6.0% in November, providing relief after a painful summer spike of 14.3%. In fact, rapid swings in gasoline prices were often a key contributor to the monthly changes in CPI in 2023.
When energy costs are high, it can also impact inflation indirectly, as many businesses that rely on energy to produce and transport goods, or to provide services, may have to raise the prices they charge consumers.
*The CPI-U energy index tracks prices for motor fuels such as gasoline and diesel; fuel oil and propane (used for residential heating); and utilities, including natural gas and electricity.
Source: U.S. Bureau of Labor Statistics, 2023