Rising Power Costs, Rising Prices: How Trump’s Energy Policy Is Adding Fuel to Inflation
Electricity prices are outpacing inflation as political constraints on renewable supply collide with surging AI-driven demand and an unprecedented wave of utility rate increases.
Electricity prices are rising far faster than overall inflation, and recent Trump administration actions targeting renewable energy risk pushing them higher still. With utilities filing record rate increases and AI-driven demand accelerating, politicized energy supply restraint is becoming an immediate inflation and affordability problem—not a distant climate debate.
Key Results
· Electricity prices are rising roughly 2.5× faster than overall inflation, creating a direct input cost channel for inflation persistence.
· Utilities across major states are pursuing large, multi-year base-rate increases tied to grid investment, demand growth, and capital costs.
· Rapid expansion of AI data centers is driving structural electricity demand growth that current systems were not designed to absorb cheaply or quickly.
· Trump administration tax and regulatory actions are slowing renewable energy deployment at the exact moment new supply is most needed.
· Politically constrained energy supply—under both parties—raises long-run electricity prices and exacerbates inflation and affordability risks.
Introduction:
During the 2024 campaign, Donald Trump repeatedly emphasized two economic claims. First, inflation had spun out of control under the Biden administration, with food prices—especially eggs—serving as the most frequently cited example. Second, the Biden administration’s energy policy, particularly its restrictions on oil production and drilling, was portrayed as a key driver of higher prices and weaker economic growth.
Now that Trump has returned to office, inflation is lower than at its peak during the Biden years but remains meaningfully above target. Electricity prices, in particular, continue to rise faster than overall inflation. Utilities across much of the country are seeking additional rate increases, citing higher capital costs and rapidly growing demand, including demand from AI data centers. Because electricity is a core input into nearly all economic activity, sustained increases in electricity prices risk feeding back into broader inflation pressures.
At the same time, the administration has taken several steps that may further strain electricity supply over the medium term. These include efforts to rescind or weaken tax incentives for solar and wind power, along with new regulatory actions targeting wind projects and likely to affect solar development as well. Democrats have been slow to recognize that, despite different rhetoric, the Trump administration is repeating elements of the Biden energy-policy mistake it once criticized: constraining energy supply in ways that raise prices and risk undermining economic growth.
Recent increases in electricity prices and overall inflation
Recent inflation data show that electricity prices are rising far faster than overall consumer prices. Using Consumer Price Index data from the Bureau of Labor Statistics, electricity prices increased substantially over the most recent year, with gains that exceed headline inflation at both the national and regional level.
Nationally, electricity prices rose 6.7 percent from December 2024 to December 2025. Over the same period, the CPI for all items increased 2.7 percent, roughly 2.5 times the pace of overall inflation.
This divergence is not confined to a single region. Electricity prices increased 10.0 percent in the Northeast, 11.4 percent in the Midwest, and 5.5 percent in the South over the same period, while remaining below overall CPI inflation only in the West.
These consumer price increases are corroborated by upstream producer price data. The Producer Price Index for industrial electric power rose 5.6 percent from December 2024 to December 2025. This increase indicates that electricity-related cost pressures are appearing at the producer level as well as in retail electricity bills to consumers.
When electricity prices rise faster than overall inflation, these higher input costs can reinforce broader inflationary pressures and contribute to persistence over time.
The link between Electricity Prices and Future Inflation
There is a large economic literature linking energy price shocks to higher inflation and weaker real growth. Most of the foundational evidence focuses on oil and gas shocks during the 1970s, when energy costs rose sharply and fed into broad wage–price dynamics but there is substantial literature on the impact of electricity prices on future inflation.
Some academic studies:
Work by Kilian and coauthors shows that sustained increases in energy prices can spill over into core inflation through input costs and inflation expectations rather than remaining confined to headline measures.
Kilian et al. (2022), “Energy Price Shocks and Inflation,” Federal Reserve Bank of Dallas Working Paper
https://www.dallasfed.org/~/media/documents/research/papers/2022/wp2224.pdf
Recent IMF analysis similarly finds that energy prices were a major contributor to post-pandemic inflation and that these effects persisted beyond the energy sector, particularly in Europe where electricity prices transmitted gas price shocks to households and firms.
IMF (2025), “The Energy Origins of the Global Inflation Surge”
https://www.imf.org/en/Publications/WP/Issues/2025/05/09/The-Energy-Origins-of-the-Global-Inflation-Surge-566804
Central bank research, including from the Federal Reserve Bank of Kansas City, suggests that energy price pass-through to core inflation is smaller today than during the 1970s oil shocks, reflecting better-anchored expectations and institutional changes. These findings are best interpreted as ruling out a return to 1970s-style wage–price spirals rather than eliminating the possibility of persistence from sustained energy cost increases.
Leduc and Wilson, “Has the Pass-Through of Energy Prices to Inflation Changed?”
https://www.kansascityfed.org/documents/5321/pdf-rwp09-06.pdf
Bednář et al. use European data to show that electricity price increases spill over into inflation excluding electricity itself, particularly after 2009, suggesting effects beyond mechanical CPI weighting.
Bednář et al. (2022), “Energy Prices Impact on Inflationary Spiral,” Energies
https://www.mdpi.com/1996-1073/15/9/3443
Patzelt and Reis show that increases in household energy prices raise inflation expectations in a persistent manner. Electricity is not isolated empirically, but electricity bills are among the most visible and salient household energy expenditures, making the results directly relevant for electricity-driven inflation persistence.
Patzelt and Reis, “Energy Prices and Anchoring of Inflation Expectations”
https://personal.lse.ac.uk/reisr/papers/99-oilanchoring.pdf
Firm-level evidence also supports gradual and persistent pass-through from cost shocks into prices. Bils et al. show that firms typically adjust prices slowly when input costs rise, and that price increases tend not to reverse quickly once implemented. Electricity is not modeled separately, but as a basic, hard-to-substitute input, sustained increases in electricity prices plausibly feed into broader prices over time.
Bils et al., “Input Cost Shocks and Firm Pricing,” NBER Working Paper
https://www.nber.org/papers/w22281
Time-series evidence linking electricity prices and inflation is more heterogeneous. Vector autoregression and Granger-causality studies that explicitly include electricity prices find mixed directional relationships across countries. In some cases, electricity prices Granger-cause CPI inflation; in others, inflation predicts electricity prices, or no statistically strong relationship appears.
For example:
“Electricity Prices, Renewable Energy, and Inflation,” VAR evidence for Latin America
https://e-ahuri.org/wp-content/uploads/1-Ahuri1494.pdf
Related VAR studies in emerging markets similarly find that electricity prices and inflation interact over time, but with country-specific dynamics rather than a universal causal ordering.
Kabir (2025), TEM Journal
https://www.temjournal.com/content/144/TEMJournalNovember2025_3107_3117.pdf
The consistent takeaway from this literature is not the existence of a universal causal rule, but that electricity prices and inflation interact in ways that can support persistence, particularly in regulated systems where price adjustments are delayed and then implemented in discrete steps. These dynamics align with a view of electricity prices as a potential amplifier of inflation persistence rather than as a one-time shock.
Recent utility rate filings and implications for electricity prices
Recent developments in regulated utility rate cases provide direct and contemporaneous evidence of continued upward pressure on electricity prices.
High-profile and increasingly contentious rate proceedings in large states including New York, California, New Jersey, and Colorado point to sustained increases in customer bills.
Some examples of recent rate hikes:
The scale and structure of rate filings in 2024 and 2025 suggest that current price increases likely reflect the early stages of a broader, filing-driven adjustment process that will continue to work through retail electricity prices over time.
In New York, major investor-owned utilities have sought multi-year rate increases tied to grid investment, reliability, and electrification-related capital spending. Consolidated Edison and National Grid have both faced public opposition and regulatory scrutiny over the size of requested increases, but filings nonetheless point to materially higher average bills even after expected regulatory modifications.
In California, utilities including Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric have pursued large base-rate increases driven by wildfire mitigation, hardening investments, and system resilience. Although rate design and approval timing vary, cumulative increases remain substantial and have drawn political and consumer backlash.
In New Jersey, Public Service Electric & Gas and other utilities have filed for rate increases linked to grid modernization, storm hardening, and rising capital expenditures associated with load growth and reliability standards. Rate cases have prompted extensive public hearings and political attention, with regulators weighing affordability concerns against infrastructure investment requirements.
In Colorado, Xcel Energy has filed rate cases reflecting transmission investment, resource replacement, and demand growth, with regulators explicitly citing system expansion and infrastructure needs as drivers of higher costs passed through to customers.
https://www.denverpost.com/2024/01/18/xcel-energy-colorado-rate-increase/
Broader Studies and Databases:
Beyond individual state cases, the clearest public signal on the aggregate magnitude of recent rate activity comes from PowerLines, a project that tracks utility rate increase requests and approvals using public utility commission dockets and contemporaneous reporting. PowerLines estimates that utilities requested and/or received approval for more than $34 billion in electric and natural gas rate increases through the first three quarters of 2025, affecting approximately 124 million customers nationwide. PowerLines characterizes this total as more than double the comparable amount in 2024 and among the highest levels of rate increase activity observed in recent years.
While PowerLines does not publish a fully standardized utility- or state-level dataset and relies on public reporting rather than a unified regulatory database, its quarterly aggregates provide a useful top-level indicator that the dollar volume of rate filings in 2025 was unusually large.
Industry research from S&P Global Market Intelligence points in the same direction using a different methodology. Drawing on its Regulatory Research Associates rate case database, S&P reports that U.S. investor-owned utilities requested a record amount of rate increases in 2025, even as the number of new rate cases declined relative to 2024. This pattern implies fewer but substantially larger filings, consistent with utilities pursuing broad base-rate resets tied to capital spending, grid hardening, system expansion, and rising demand rather than incremental adjustments.
Other commonly cited public data sources are less informative for assessing forward-looking price pressure. The Bureau of Labor Statistics and the U.S. Energy Information Administration provide high-quality data on realized electricity prices and inflation, but do not track filed or pending rate cases. State public utility commissions publish primary docket materials, but there is no centralized national database suitable for systematic aggregation. As a result, public assessment of the rate-filing pipeline necessarily relies on partial aggregations such as PowerLines and high-level industry summaries from vendors such as S&P Global.
Electricity inflation is already evident in realized price data, rate hikes are ongoing across major states, and utilities continue to pursue large base-rate resets.
Two factors – ongoing increases in demand from growth of AI data centers and reduced supply in renewables – from Trump Administration regulatory and tax actions – threaten to exacerbate these trends.
Structural growth in electricity demand from AI data centers
Electricity demand growth is shifting structurally as AI data centers expand rapidly across multiple regions of the United States.
Unlike many historical sources of load growth, AI-related demand is highly concentrated, continuous, and capital intensive. Large data centers require reliable, around-the-clock power, placing sustained demands on generation capacity, transmission infrastructure, and local distribution networks. The growth of AI computing is increasingly intersecting with electricity affordability debates at the state, regional, and local level.
Recent reporting documents how this demand surge is already reshaping electricity markets and regulatory discussions.
In parts of Virginia and Maryland with dense data-center development, wholesale electricity prices have risen sharply over recent years, and those increases are feeding into retail rates faced by households and small businesses. In the Mid-Atlantic more broadly, grid operators serving large multi-state regions, including PJM, are weighing proposals to manage the affordability and reliability implications of rapidly growing large-load customers. At the local level, communities in states such as Georgia, Maryland, and New Jersey have debated moratoria, zoning restrictions, and special rate structures in response to concerns that data center growth is contributing to higher electricity bills and straining grid infrastructure.
The link between AI-driven demand growth and consumer electricity prices is well grounded in standard demand and cost pass-through dynamics rather than analytically ambiguous. Electric systems were not designed for sudden additions of hundreds of megawatts of continuous load in specific locations, and the resulting generation, transmission, and distribution investments are typically financed through regulated rates. As a result, even when data centers ultimately support regional economic growth, their expansion can place upward pressure on electricity prices during the adjustment period, particularly where cost-allocation rules allow portions of the investment burden to be shared across the broader rate base.
Industry groups and large technology firms broadly acknowledge this adjustment challenge and argue that expanded supply can ultimately benefit consumers if investment keeps pace with demand and if pricing structures prevent cross-subsidization. Utilities and data center operators emphasize commitments to finance new generation and grid upgrades, to pay higher rates reflective of their load characteristics, and to coordinate capacity additions with system planners. These commitments reflect growing awareness of affordability and political risks associated with rising power costs, but they also imply significant execution challenges and long lead times before potential cost relief could materialize.
Recent legal, regulatory, and market analyses reinforce the distinction between clear demand-side pressures and uncertain cost incidence. Research highlights how utility rate design, special contracts, and negotiated tariffs can shift part of the cost of serving large data centers onto other customers, even when utilities assert that industrial load pays its full cost. At the system level, grid operators increasingly frame large-load integration as a reliability and affordability planning challenge, underscoring that price outcomes depend not only on demand growth but on the timing of supply additions and the structure of rate recovery. Consistent with this view, recent reporting shows that regions experiencing rapid data-center growth have also seen sharp increases in wholesale and retail electricity costs, reinforcing the risk that demand expansion translates into persistent price pressure when supply and regulatory adjustments lag.
Mitigating effects are neither automatic nor immediate. Supply additions take time, interconnection and transmission constraints remain binding in many regions, and rate design decisions determine whether industrial load genuinely bears its incremental costs. In the short to medium term, demand growth can outpace supply expansion, and in regulated systems the costs of accelerated investment are typically recovered through customer bills over time rather than absorbed upfront by large users. From a rate-setting perspective,
In this context, policies that slow or discourage new renewable generation appear misaligned with prevailing demand and cost conditions. Instead of easing adjustment pressures in a period of rapid load growth, recent actions affecting renewable supply risk reinforcing the very price dynamics that policymakers have previously sought to avoid.
Policy actions affecting renewable energy supply
Despite branding himself as an “energy growth” president, President Donald Trump is constraining renewable energy supply through tax and regulatory actions in much the same way that President Joe Biden constrained fossil fuel supply. In both cases, executive discretion and political preferences have been allowed to shape energy supply conditions, rather than demand growth, cost minimization, or scientific assessments of system needs.
Tax policy actions affecting solar and wind under Trump:
The One Big Beautiful Bill Act (H.R. 1), enacted in July 2025, significantly weakens clean-energy tax incentives that had previously supported wind and solar investment. The legislation accelerates phaseouts and tightens eligibility criteria for production and investment tax credits, reducing their effective value and increasing financing costs. Legal and tax analyses highlight that the law disrupts previously stable investment assumptions and raises policy risk premiums for new projects.
https://www.fticonsulting.com/insights/articles/h-r-1-energy-transition
Subsequent executive guidance directs Treasury to interpret these credits narrowly and frames them as market-distorting subsidies, reinforcing investor expectations that renewable incentives will continue to erode.
https://www.whitehouse.gov/presidential-actions/2025/07/ending-market-distorting-subsidies-for-unreliable-foreign%E2%80%91controlled-energy-sources/
The effects are not limited to utility-scale projects. Reporting indicates that residential solar credits are ending earlier than previously expected, with industry forecasts pointing to a sharp contraction in installations beginning in 2026, directly reducing demand for new renewable capacity.
https://www.ft.com/content/7704e28a-5ec3-4921-acc7-bbbd1fb97980
Regulatory and legal actions affecting wind and solar under Trump:
A direct parallel to federal leasing restrictions imposed on fossil fuels under the Biden administration can be found in Trump-era actions affecting wind. On January 20, 2025, the administration issued a memorandum temporarily withdrawing all areas of the Outer Continental Shelf from consideration for new or renewed offshore wind leasing, pending a review of leasing and permitting practices. This action effectively halted new offshore wind development across federal waters.
https://www.whitehouse.gov/presidential-actions/2025/01/temporary-withdrawal-of-all-areas-on-the-outer-continental-shelf-from-offshore-wind-leasing-and-review-of-the-federal-governments-leasing-and-permitting-practices-for-wind-projects/
Congressional analysis describes the memorandum as suspending offshore wind leasing and delaying project approvals while reviews proceed, increasing regulatory risk and pushing back construction timelines even for projects with advanced development status.
https://www.congress.gov/crs-product/IN12509
The administration has also emphasized ending what it characterizes as preferential treatment for wind and solar in federal permitting and land-use decisions. This posture increases uncertainty for utility-scale solar projects that depend on federal land access, environmental review, or coordinated permitting.
https://www.whitehouse.gov/presidential-actions/2025/07/ending-market-distorting-subsidies-for-unreliable-foreign%E2%80%91controlled-energy-sources/
These actions are occurring at a time when electricity demand growth is accelerating, and regulated utilities are already seeking sizable rate increases to recover rising capital costs.
Similarities Between Trump and Biden:
The animus that the Trump Administration is displaying towards renewables is similar to the animus the Biden administration displayed towards fossil fuels.
Executive actions directing federal regulators to assess climate-related financial risk raised expectations that fossil fuel activities would face higher scrutiny and capital costs over time.
Critics argued that this policy signaling discouraged lending and investment during and after the COVID period, with long-run implications for supply growth.
https://www.federalregister.gov/documents/2021/05/25/2021-11168/climate-related-financial-risk
Under the Biden administration, federal control over land access was used to constrain fossil fuel supply. In January 2021, the Department of the Interior paused new oil and natural gas leasing on public lands and offshore waters while conducting a programmatic review, reducing expected future supply growth.
Under the Trump administration, federal control over offshore areas is being used in a similar manner to constrain renewable supply. The 2025 withdrawal of the Outer Continental Shelf from offshore wind leasing prevents any new wind development in federal waters during the review period. The mechanisms differ, but the economic effect is comparable: delayed capacity additions and higher long-run costs.
Implication
The core risk is not the specific energy technology favored or disfavored, but the growing tendency for energy supply conditions to be dictated by political preference rather than system needs. By constraining renewable deployment through tax and permitting policy, the current administration risks repeating the same supply-side error it once criticized under Biden-era fossil fuel restrictions. In an environment of strong electricity demand growth, politicized supply restraint increases cost pressures and contributes to higher long-run electricity prices.
Conclusion
Electricity inflation is no longer a theoretical risk or a future concern. Prices are already rising faster than headline inflation, utility rate hikes are locked into regulatory pipelines, and demand from AI data centers is arriving faster than supply can respond. Against this backdrop, Trump administration actions that weaken wind and solar deployment are not neutral corrections—they actively tighten an already strained system.
The deeper economic story is broader than any single administration: regulated rate dynamics, capital-intensive infrastructure, and structural demand growth all matter. But the immediate political reality is sharper. By constraining renewable supply today, the administration is amplifying near-term electricity price pressure and feeding the very inflation narrative it campaigned against. In energy economics, physics still beats politics—and the power bill always shows up on time.
Author’s Note
I’m keeping this post free and pinned to the web page for the next week or two because electricity prices and inflation have become an immediate economic and political issue, and the analysis should circulate.
For readers who want to support this work, there’s also a Founders Subscription option. From time to time, I may choose to highlight a founder’s perspective in a new Founders’ Viewpoints section, where it adds substance to the discussion. Editorial judgment and acceptance decisions remain entirely with me, and subscriptions can be canceled at any time.