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Energy prices and private consumption: what are the channels?

Niccolò Battistini, Virginia Di Nino, Maarten Dossche () and Aleksandra Kolndrekaj

Economic Bulletin Articles, 2022, vol. 3

Abstract: The recent increase in energy prices raises the question of the extent to which households will reduce their consumption in response. This article reviews the drivers of the macroeconomic transmission of higher energy prices. It finds that in the first half of 2021 households regarded most of the rise in energy prices as being driven by stronger aggregate demand, leading to a recovery in consumption. However, since the summer of 2021 price rises caused, among other things, by disruptions in the supply of energy have increasingly weighed on household spending. This article also analyses the distributional impact of higher energy prices. Because poorer households spend a relatively large percentage of their income on energy, their purchasing power is particularly affected when energy prices surge. While monetary policy may have a limited role to play in counteracting the fallout from supply-driven changes in energy prices, targeted fiscal policies seem well suited to addressing the impact on the most affected households. JEL Classification: C23, C32, D39, E21

Keywords: central bank policy; monetary policy (search for similar items in EconPapers)
Date: 2022-04
Note: 3577821
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