Inflation is a quantitative measure of the rate at which the average price level of selected goods and services in an economy increases over some period of time. The current rate of inflation is often used as a predictor for the future costs of goods or services.
Inflation rate of Electricity in the U.S.
Between 1913 and 2020 electricity costs experienced an average inflation rate of 1.45% per year:
In addition to the law of supply and demand, costs of a good are determined by many factors such as location, new technologies driving prices down, cost to deliver the product, or costs of feedstocks or processing waste chemicals. For example, energy costs skyrocketed in the 70's mainly due to the
1973 oil crisis.
The average current inflation rate for electricity in the U.S. is 2.3%.
How to Calculate Future Cost of Goods Using Inflation Rates
Future price = Current price x (1 + Inflation rate year 1) x (1 + Inflation rate year 2)
Example: Your current electricity bill is $100/month. If the amount of power consumed stays the same and at a 1.45% inflation rate, what will that cost in 2 years? The calculation is:
Future price year 1: $100 x (1.0145) = $101.45
Future price year 1: $101.45 x (1.0145) = $102.93
That's a bit cumbersome for solar calculations where you might want to go out 25 years.
The formula for this is:
Pn = P(1+i)^n
Where:
Pn = Total Inflated Estimated Cost
P = Base estimated Cost
i = Inflation Rate
n = Difference between Base Year and Selected Year. Ex 2010 - 2005 = 5 years, therefore n = 5 (1+i)n = Inflation Factor
So, if in 1913 your bill was $100/month, what would if be in 2020 at an inflation rate of 1.45%?
Pn = $100 (1.0145)^(2020-1913) = $467
What will my Power bill be in 25 years?
First you need to guess at what the future inflation rate will be, for this exercise let's guess it'll be the current rate in the U.S. of 2.3%.
If you're bill averages $150/month now, or 150 x 12 = $1800/year, then:
Pn = $1800(1.023)^(25) = $3,178/year or $264/month
