The Energy Crisis and Its Real Impact on the Inflation Rate

Abstract

In the year 2022, inflation has become a global phenomenon. According to the World Bank, inflation affected developed countries (100%) and emerging markets/developing economies (87%). About two-thirds of advanced economies and just over half of emerging markets exceeded forecast inflation for 2021. This drove interest rates higher and helped tighten monetary conditions. As a result of the increasing costs of loans, this fact can lead to financial crises. The main causes on account of which the political factor justifies the increase in inflation refer to the war in Ukraine and the energy crisis. However, the direct effect of energy prices on inflation is low, as the share of energy costs in the consumption basket is low, according to the calculation formula used at the European level. Moreover, the population’s perception reinforces this aspect, considering the fact that the prices of the most common food products in the daily basket have doubled or even tripled. Even in these conditions, energy companies continued to make high profits, which is why the need to overtax them at the European level arose. Although the energy crisis is recognized as one of the main causes of inflation, despite the importance of this topic, academic studies have neglected to analyze the real impact on inflation of energy shocks resulting from price increases. In such a context, the present study starts from the premise that the current energy crisis cannot be considered to be the only determining cause of the growth of the inflationary phenomenon. This could be the result of macroeconomic policies perpetuated over several decades, without a positive echo in the economy.