The data tell a similar story in New England, where high demand coupled with natural gas supply constraints sent city gate and electricity prices soaring.

Restricting Energy Is Inflationary

There are a few characteristics inherent to energy products which elevate their influence on broader macroeconomic issues, such as inflation.

Energy is the fundamental economic input. Every household, business, school, and institution relies on energy. Our world is so thoroughly structured around access to power, fuel heating, and petro transportation, it’s hard to take stock of the full scope of our dependence on it. It is required at every stage of production for all products—from raw material sourcing to manufacturing, distribution, and final delivery. When energy costs rise, so do the prices of all goods and services. Even relatively small increases in energy prices can have an outsized impact on overall inflation.
Energy demand is price-inelastic. Households and businesses must continue buying energy, even at higher prices. Unlike discretionary goods, there is no substitute to heating homes, fueling trucks, or keeping the lights on. Unlike other products, you cannot “switch brands” when energy prices spike—you simply pay more.
High energy prices reduce purchasing power. Because energy utilities are indispensable and energy is an input to all products, price hikes leave consumers with less money for other goods and services. This effect is especially severe for low-income and middle-class families, who spend a higher percentage of their income on utilities and transportation.

While inflation is a multi-factor issue, the role of energy shortages and misguided energy policies cannot be denied and should not be ignored.

Rising Energy Costs Are an Energy Emergency

Trump’s “Energy Emergency” framework correctly identifies high energy costs as both an inflationary pressure and a direct burden on working Americans.

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