How changes in energy prices are linked to inflation
Posted on 25th September 2019 at 17:02
In the UK energy market, it is common for business energy suppliers to compete on price and service. Many often wonder what the mechanics are behind changes in energy prices and how they are connected to inflation.
When suppliers set energy prices they are mainly seeking to cover their costs and make a profit. In the current market, there is a great deal of pressure on suppliers to keep prices low and costs down, otherwise, they risk losing customers.
It is useful for the customer to stay informed on industry costs faced by suppliers, becoming more educated on your energy costs.
Low inflation means lower prices
In January 2019, the Office of National Statistics (ONS) reported that inflation had fallen to a two year low. The 12 month CPI inflation rate was reported as 1.8% in January 2019, this was a significant drop from the 2.0% reported in December 2018. This drop in inflation was cited as a result of falling energy prices.
According to statistics, UK energy prices were gradually increasing between 2010 and 2015 peaking at 21.83 euro cents per kWh. This was until prices decreased over more recent years, measuring at 20.24 euro cents per kWh by the latter half of 2018.
Between December 2018 and January 2019 consumer prices fell by 8.5%, this was the biggest fall in gas prices in three decades. According to the ONS, an important factor in this decrease was that energy regulator Ofgem implemented an energy price cap that came into effect in January.
Falls in inflation are mainly the result of cheaper gas, electricity and petrol prices. On average, the UK has some of Europe’s highest electricity prices, and the connection between inflation and energy prices means that higher energy bills push up our prices.
How has Brexit affected inflation and energy prices?
Despite the lower inflation rate at the start of 2019, a reduction that ended a long run of CPI inflation existing above the Bank of England’s 2% target, April saw inflation rise again. The ONS recently reported that the Consumer Price Index was 2.1% in April 2019, up from 1.9% in March 2019. This is above the 2% target set by the Bank of England, but still less than was expected.
Brexit has caused unpredictability in the market, and although most started the year hoping for inflation to stay below 2% that may not be the case. However, a Brexit deal would see the UK looking ahead to lower inflation and lower prices, possibly dipping to 1.6%.
Energy price changes – where to find out more
We understand that energy costs represent one of the largest single overheads for any business and with the wholesale price of energy continuously fluctuating in a volatile market place, we will help you to avoid paying higher rates by finding a deal that is right for you. We compare business energy prices to lower your gas and electricity bills and find the right tailor-made deal for your company. Visit our business energy website or give us a call on 020 3631 5541 for an energy price comparison for your business.
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