Want to bring inflation to heel? There’s no single, simple fix, of course, or we would have done it already. But a good place to start would be weaning the economy off gasoline and diesel.
Prices for fossil fuels are through the roof. Gas prices are up over 75% since last year, and diesel is up 55%, according to AAA. There are myriad reasons why — Putin’s war in Ukraine, an unexpected surge in demand following early pandemic shutdowns, an East Coast refinery that literally exploded a few years ago and so on.
The recent surge shows the folly of tying the transportation sector — which accounts for 6% to 12% of GDP in developed countries — to highly volatile consumables that are broadly bought on a spot-price basis.
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Diesel prices alone are driving about 17% of the inflation we’re seeing today, according to Mark Zandi, chief economist at Moody’s Analytics. Inflation in the overall energy sector was nearly 30% in April, according to the Bureau of Labor Statistics, more than triple anything else. Dropping the fossil fuel would bring inflation down nearly a percentage point.
But how do you replace diesel, which is coursing through so much of our economy, from trucking to trains, ocean freight to agriculture? It won’t be easy, but it is pretty straightforward: electrification.
An electrified economy powered by renewables is less likely to be subject to sudden price shocks of the sort that oil and gas can inflict. Here’s why.