How Electricity Prices Are Affected by Inflation | Geek Business

The price of natural gas isn’t what it used to be. In only 20 years, the price of gas has doubled and even tripled depending on the provider. These figures can be misleading because consumers also need to account for other factors like rising inflation. What many people may not realize is that the relative price of gas has actually been fairly consistent. With some states offering residents different choices of gas providers, people could actually find that they can save more money by switching to another company because of the competitive nature of the business.

 

Image via InflationData.com

What Is Inflation?

Inflation happens when more currency is put into the system. In the United States, more dollars are printed and the cumulative worth of the dollar is lessened. This means that you could buy more with $1 fifty years ago than you can today. The price of products has not necessarily gone up, but the worth of currency has gone down.

Determining Real Inflation is how economists figure out how much value goods or services have actually gained. If you check out the Inflation Adjusted price of natural gas for the past 30 years you will see the price of gas now, in the 2010s, has dropped down to what the price of gas was in the mid 1980s.

How the Market Influences the Price of Gas

The basics of selling commodities are finding the right balance between supply and demand or the cost versus the profit. If a product is scarce, the cost goes up. This can be seen in the natural gas market during the early 2000s. When you look at inflation adjusted data, the market peaked at around 2005 as gas production slowed. New supplies of gas were dwindling, and prices rose as gas became scarcer.

The market crash in 2008 caused a sharp fall in the price of gas, but the prices continued to fall as the decade came to a close because new technology and mining techniques added more supply to the system.

How Gas Supply Has Increased

In the early 2000s the price of gas rose steadily. People thought it would soon become uneconomical to use natural gas, but then different mining companies started using a process called fracking to get to deposits of gas and oil that had been inaccessible before.

Fracking has existed since the late 1940s, but it has only been in recent times that the gas industry has used it to increase supply. The biggest benefit of fracking is how it lowers the cost of retrieving natural resources at the “wellhead.” When the cost drops at the wellhead, the savings is translated to everyone else down the chain resulting in lower residential and business electricity rates.

Getting the Best Rate on Natural Gas

Many states have privatized their utilities, allowing people to pick and choose their own supplier. Some people do not realize that they can shop around for a better deal. They end up paying more for gas than they need to. Since the supply of natural gas has been reestablished, you should not need to overpay for gas.

Article courtesy of NJ natural gas provider PlymouthEnergy.com