Inflation, European Union Regulation and the Structure of Energy Commodities Markets

Domenica Tropeano

Review of Political Economy, 2025, vol. 37, issue 4, 1716-1732

Abstract: The idea that income distribution depends not only on conflict but also on institutions and legislation is applied in this work to the explanation of the inflation unleashed in many European countries in 2022. The paper deals with the financialization of energy firms and the formation of prices in the common financial market for energy and electricity. Those markets do not meet the requirements of perfect competition and their liquidity is not warranted. In fact, in these markets there are no intermediaries who intervene to mitigate price fluctuations and who have access to central bank funding. They are therefore subject to cumulative processes of price increases or decreases. Such price developments can be completely disconnected from changes in supply and demand. The thesis that prices should be allowed to vary because they would restore equilibrium in the market appears to be unfounded. Interventions aimed at avoiding the cumulative process of rising energy prices would have been more effective than raising interest rates.

Date: 2025
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DOI: 10.1080/09538259.2025.2510689

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