I asked a friend who is a supply chain manager for a high-tech company whether he sees inflation from his suppliers. He said, “I am seeing it. Multiple price increases, and one supplier, at least, has put us on allocation…” Supply/demand/price response.
Inflation is one thing for manufacturers, and what about your utility bill? Power companies are manufacturers.
Prices for goods that utilities use will increase, too, like healthcare (employee benefits), electronics, and check this Barron’s headline about materials: Why Rising Inflation Will Continue to Boost Lumber, Copper, and Steel Prices.
Think electricity and think copper. “Copper has enjoyed an unstoppable rally for more than a year thanks to pledges by governments to boost renewable energy and electric vehicle use,” said Bloomberg New Energy Finance. “That’ll make all the various forms of green technology that rely on it a bit more expensive. Bigger power grids is one such case. About 1.9 million tons of copper was used to build electricity networks in 2020 … and the price of the red metal is up more than 90% in the past year.”
Here’s another specific example – solar energy. One solar developer says it is, “dealing with increases in steel and shipping costs that are ‘unprecedented both in their magnitude and rate of change.’ It said that compared to the first quarter of 2020, spot prices of hot rolled coil steel more than doubled in the first quarter of 2021.’
Here’s another. “Natural gas prices are rising this year … As a result, going into the summer months, the cost of natural gas delivered to electric generators will be nearly 50 percent higher compared to last year, the Energy Information Administration said.”
Other costs are going up, too. Like taxes and government fees. Duke Energy’s CEO noted in an interview that with tax reductions in the recent past, it “reduced the cost of electricity to my customers by over a billion dollars. It did not stay in the corporate coffers of Duke Energy, it flowed right to customers. And similarly, if taxes rise it becomes something that we’ll work with our regulators and customers on to try to minimize the impact.”
What else will go up? How about costs to prevent cyber intrusions. Consider the ripple effect of the Colonial Pipeline hack.
Inflation is a real-life thing, not just what is reported in the press. Consumers – people on the front lines – are the real sources of data. There’s a warning to consumers. “The gap between reported price inflation and the experiences of businesses and consumers is a signal to investors that inflation is hotter than it looks.”
We’ll see. Few hold their breath for low inflation. That’s my take as someone who started his professional life in energy in the inflation-ravaged mid-1970s. Others are watching, too. “Professional inflation-watchers are on close watch for signs that these forces might be unleashing a form of thinking about price dynamics unseen since the early 1980s, when prices rose in part because everyone expected them to,” said the NY Times.
What is the upshot for electricity customers? If there is a pervasive inflation trend, utilities must act. Hard not to. Bigger companies could have more tools to make it easier on consumers. Smaller utilities or those with unfortunate debt-levels may be challenged. That means their customers will have it tougher, too.