Energy expenditures and CPI inflation in 2022: Inflation was even higher than we thought

Chowdhury, Aftab Uddin and Dixon, Huw ORCID: https://orcid.org/0000-0002-9875-8965 2023. Energy expenditures and CPI inflation in 2022: Inflation was even higher than we thought. [Project Report]. London: National Institute of Economic and Social Research. Available at: https://www.niesr.ac.uk/wp-content/uploads/2023/07...

Preview

PDF - Published Version Download (1MB) | Preview

Abstract

This study finds a downward bias in the official CPI inflation figure from the second quarter to the end of 2022 due to the sudden changes in household energy expenditure. The energy price (specifically, oil price) started increasing from the last quarter of 2021 due to the rebound of economic activity and the supply-side issues after the Covid-19 pandemic, as well as the declining investment in oil and gas production after 2014. However, the sudden increase in the energy price in the second quarter of 2022 is simply derived from the Russia-Ukraine conflict that began on 24 February 2022. The sudden rise in the energy price and its inelastic nature has generated significant changes in household expenditure for energy (specifically in COICOP 04 Housing, water, electricity, gas, and other fuels and the COICOP 07 transport). These produce a significant downward bias in the official CPI inflation rate in COICOP 04 and 07, hence in the official CPI inflation rate for all items. Moreover, the input-output matrix of the national accounts helps us find the intermediate use of energy and its impact in other COICOP divisions which are not directly related to energy, such as COIOP 02 Alcoholic Beverages and Tobacco, COICOP 05 manufacture of Furniture, and COICOP 06 Health. All those together have caused the downward bias in the official CPI inflation rate in 2022.

Item Type:	Monograph (Project Report)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	National Institute of Economic and Social Research
Date of First Compliant Deposit:	10 October 2023
Last Modified:	10 Oct 2023 09:04
URI:	https://orca.cardiff.ac.uk/id/eprint/162823

Actions (repository staff only)

Edit Item