Key Inflation Measure Surges
January saw a sudden and unexpected sharp increase in  the Fed's preferred inflation measure, ending any hope that rising prices have been tamed and signalling further interest rate hikes

 Our government measures rising prices in two different ways.

Though the most widely reported inflation numbers come from the Bureau of Labor Statistics' Consumer Price Index (CPI), few are aware that the Federal Reserve stopped using the CPI a decade ago.

Back in January 2012, the Fed started using a different inflation gauge called the Personal Consumption Expenditures Index (PCE) instead.

While both the CPI and PCE measure inflation based on the price of a "basket of goods," the PCE, which is produced by the U.S. Bureau of Economic Analysis (BEA) is considered more reliable for several reasons.

  • Data source: Whereas the CPI only uses information from household surveys; the PCE considers data from suppliers as well. The PCE also measures goods and services bought by all U.S. households and nonprofits, while the CPI only looks at urban households.

  • Coverage: The CPI only considers out-of-pocket expenses. That means it fails to measure price increases of commodities that we don't directly pay for ourselves, like medical care that's covered by insurance.

  •  Formula: The CPI uses a formula that's highly sensitive to commodities with wide price swings, like computers and gasoline. The PCE formula, on the other hand, smooths out such price swings, making it a much less volatile measure.

January's CPE numbers

Well, the BEA just released its PCE numbers for January 2023,  dashing any hope that our recent bout of rapidly rising prices is coming to an end.

According to the PCE, inflation climbed 0.6% in January, putting the annual inflation rate at 6.4%.

Besides being a steep increase over December's 0.2% rate, that's also the biggest monthly inflation surge since June of last year.

And, as you might have expected given the sharp rise in prices, consumer spending—which the BEA report also measures—rose 1.8% last month.

Interest rate hikes

After six months in which it seemed like inflation was finally getting under control, January's sharp increase was unexpected and likely signals that the Federal Reserve will keep hiking interest rates in an effort to tame rising prices.

As a measure of what all this means in practical terms, the average 30-year fixed mortgage rate just spiked to 6.66%, the highest it's been since 2007.

Opportunity knocks

So, unless you’re planning to pay out of pocket, continuing to delay your transition to solar power will mean decreased savings as the cost of financing rises.

Many homeowners and small businesses now able to substantially decrease their energy costs by going solar will soon find the opportunity has vanished.

For others,  going solar may already be such a good deal that they’ll still be able to save money even at higher interest rates. But, of course, even they'll wind up saving a lot less than they would have had they acted sooner.

And that’s just one end of the equation.

Soaring energy prices

The last time we experienced a serious bout of inflation was in the 1970s. During the previous relatively low inflation of the 1960s, electricity prices remained very stable at around 2 cents per kilowatt-hour.

But the inflation we suffered in the 1970s resulted in electricity prices rising all the way up to 7 cents per kilowatt hour, a jaw-dropping 250% increase.

Unfortunately, we’re already seeing the same effect on energy prices today.

Pennsylvania Light and Power (PPL), which serves over 2.5 million customers in central and western PA, hiked its rate by 18% in December. 

That's on top of a 38% rate increase in June and another 26% hike the previous December.

The cost of not going solar

All told, in just one year, PPL’s 2.5 million residential customers have already seen their electric rate more than double.

Given that both interest rates and the cost of electricity are going to keep climbing, the decision to defer locking in a low electric rate by generating your own clean and renewable solar energy could turn out to be pretty costly.

Key Inflation Measure Surges
ReNu Solar and Roofing, Michael Thau 9 March, 2023
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