Declining American energy prices lower cost of living – EIA

 Between 2008 and 2014 average annual household energy expenditures declined by 14.1%

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

American energy costs have been dropping steadily for the better part of a decade, according to the latest data from the U.S. Energy Information Administration.

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 per cent from June 2014 to Feb. 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 per cent in March as real crude oil prices rose 18.1 per cent, while natural gas prices continued to decline.

Between June 2014 and Feb. 2016, the inflation-adjusted Brent crude oil and Henry Hub natural gas prices declined 71 per cent and 56 per cent, respectively.

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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 per cent, 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 per cent, while the shelter component rose 5.1 per cent.

The energy component rose 4.9 per cent from Feb. to March 2016, remaining 12.9 per cent below its 2015 average.

Declining

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 per cent 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 per cent.

During this period, household expenditures decreased by 17.7 per cent for gasoline, 25.1 per cent for natural gas, and 28.3 per cent for fuel oil.

Electricity expenditures declined by a more modest 0.7 per cent. EIA uses these average household energy expenditures to inform its outlooks for summer transportation expenditures and winter heating fuels expenditures.

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