What is the effect of energy prices on consumer prices in Austria? A production-side decomposition

Martin Schneider ()
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Martin Schneider: Oesterreichische Nationalbank, Economic Analysis Divison, http://www.oenb.at

Monetary Policy & the Economy, 2023, issue Q4/22-Q1/23, 33-41

Abstract: We analyze the role of energy in consumer price developments in Austria using a production- side decomposition based on input-output tables. The overall share of energy in total private consumption expenditure amounted to 7.7% in 2018 and from then more than doubled to reach 17.7% in November 2022. In 2018, the share of energy was substantial in spending on housing (29%) and transport (26%), while it was almost negligible (1.0%) in spending on other consumer goods. In addition, we estimated the impact of the increase in energy wholesale prices between January 2021 and November 2022 on consumer prices. Under the assumption of a full absolute pass-through of energy prices, our input-output approach suggests a contribution of energy prices to headline inflation of 14.5 percentage points, which is considerably higher than the contribution of the HICP energy component in this period (6.2%). The remaining 8.3 percentage points can be seen as “inflation backlog,” which is due to the delayed adjustment of consumer prices for electricity, gas and district heating to wholesale energy prices. The degree to which this backlog will materialize and the adjustment path mainly depend on the future path of wholesale prices and the lag with which price changes feed through to end-user contracts and are therefore subject to considerable uncertainty. The Austrian government has implemented a cap on electricity prices (“Strompreisbremse”), which will reduce inflation by 0.9 percentage points in 2023. In 2024, the abolishment of the cap will increase inflation by 0.3 percentage points.

Keywords: inflation pass-through; inflation backlog; input-output model (search for similar items in EconPapers)
JEL-codes: C6 E31 (search for similar items in EconPapers)
Date: 2023
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