Energy Prices Are Still Heating Up the Economy

Just about everything is getting more expensive — and it’s doing so faster than expected.

Overall prices rose 0.4% in October from September, according to the Bureau of Labor Statistics, compared to the 0.3% analysts were expecting. Helping lead the way was energy, which got 0.7% more expensive overall in October, thanks largely to gasoline (a 1% hike), electricity (a 0.9% hike), and fuel oil (2%).

Because of the government shutdown, the BLS did not have full year-over-year price change data other than for gasoline, which was 37% more expensive now in October of this year compared to last year. Meanwhile, in Maine specifically, heating oil prices rose a shocking 80% from last October to this one.

Electricity prices went up from 18.5 cents per kilowatt-hour in October of last year to 19.9 cents this year, according to preliminary data from Heatmap and MIT’s Electricity Price Hub. That’s a jump of over 7.5%, though one largely due to a change in the timing of a bill credit in California. Stripping out that change, the year over year price hike was around 3.8%.

Economy-wide prices are up just over 4% compared to this time last year, according to estimates from Bloomberg. The October price jump surpassed expectations even after stripping out changes to the price of food and energy, leading investors to conclude that the Federal Reserve will likely raise interest rates in December. That would follow a hike in September — the first since 2023 — and a decision in October to leave rates unchanged.

While newly installed Fed Chair Kevin Warsh has been averse to previewing his own expectations for future rate hikes, other members of the Federal Open Market Committee have been less reticent.

Speaking before the release of the inflation numbers Tuesday, Chris Waller, a member of the Federal Reserve board of governors, said that if core inflation had risen more than 0.2% from September to October, he was open to a half-point increase instead of the quarter-point many analysts expected.

Lorie Logan, the president of the Federal Reserve Bank of Dallas and a member of the Fed’s rate-setting committee, said in a speech Tuesday that interest rates were “adding to inflationary pressures,” and that rate hikes would likely be necessary.

The yield on the 10-year Treasury bond, a common benchmark for borrowing costs throughout the economy, rose to right around 5% Tuesday.

“We remain confident that they will raise rates again” by at least a quarter point, “and unless there is significant progress in negotiations with Iran and a consequential decline in energy prices, they will position themselves to raise rates again as soon as the next meeting or in March 2027,” Jefferies analyst Thomas Simons wrote in a note to clients Tuesday.

The economic and monetary policy situation has put the renewables energy industry into something of a pickle. High electricity prices are generally a boon to anyone selling power, including wind and solar developers, while higher interest rates are a burden to anyone who has to finish a big construction project funded with borrowed money before generating any revenue, like wind and solar developers.

Higher inflation also affects developers as input costs rise for projects that can take months or years to complete. And when interest rates rise, the value of future payments from electricity sales falls.

That’s what happened to the Danish wind developer Orsted, who reported a $500 million impairment on its U.S. wind operations “as a result of the 75 basis points increase of the long-dated U.S. interest rates during the third quarter,” its chief financial officer Trond Westlie said on the company’s November 5 earnings call.

The residential solar company Sunrun, which also reported earnings last week, illustrated the peril and opportunities of higher rates and higher prices.

“To the extent interest rates are sustained at current levels, our capital costs would increase from levels realized throughout 2026,” Danny Abajian, chief financial officer of Sunrun, said on the company’s earnings call. “We expect to increase prices further in 2027 as utility rates continue to rise.”