World prices have doubled since the beginning of 2021 for oil, four for coal, almost seven for natural gas… The skyrocketing energy prices are having a severe impact on the purchasing power of households in Europe. According to a study carried out by the deputy director of the IMF’s European Department, this shock, which has spread to the prices of other goods and services, will cause an average increase in the cost of living of around 7% in 2022 in the Old Continent .
Nothing very surprising. The rise in prices, specifically energy in this case, causes a drop in real household income: with the same income, a consumer will not be able to buy as much fuel in 2022 as in 2021. In several European countries, Governments have tried to limit the impact of this energy shock by partially compensating for the loss of real income with aid in the form of price controls, subsidies or tax reductions. This is what has been done in France with the tariff shield and the fuel discount of 18 cents.
Impact mitigated by government aid
In the countries where they have been implemented, these measures have made it possible to reduce the inequalities between the poorest and the richest in the face of inflation. In France, Sweden or Finland, the increase in the cost of living linked to the rise in energy prices is almost of the same magnitude for the poorest 20% and the richest 20%, around 4%.
The situation is very different in countries that have been less generous. In the United Kingdom, where households have not received such strong exceptional aid to cope with rising prices, the increase in the cost of living is estimated at 16% for the poorest households, compared to 7% for the wealthiest . In Estonia, it is 25% for the former and less than 15% for the latter.
In fact, without protective measures, low-income households are the most exposed to rising energy prices as they spend more of their budget refueling or paying their electricity or gas bills.
Given the significant loss of purchasing power suffered by the poorest in the United Kingdom or Estonia, the IMF considers that “the introduction of support measures to support low-income households, which have fewer resources to face the rebound in energy prices, is a priority.
The IMF recommends more targeted aid
The monetary institution, for its part, is critical of countries, such as France, which have chosen to launch aid that benefits both the richest and the poorest: “Political decision-makers should resolutely move away from general measures to adopt specific support policies”. , including income support for the most vulnerable”. This solution aimed at fully offsetting the rising cost of living for the poorest 20% would be much less expensive: about 0.4% of GDP on average, compared to 1.5% currently with non-directed support devices.
The IMF also recalls that this blanket aid helps keep prices high and is in contradiction with mandates to save energy and ditch fossil fuels:
“As energy prices are likely to remain above pre-crisis levels for some time, Europe must adjust to higher import bills for fossil fuels,” continues the IMF, calling for “all increased costs” of these energies “is transferred to end users to encourage energy savings and the abandonment of fossil fuels”. In short, letting the market do its thing, while supporting “low-income households income that suffers the most from the increase in energy bills”.
The UN calls for a tax on “super profits”
Like the IMF, the UN advocates support measures aimed at the most modest. But the UN Secretary-General, Antonio Guterras, has also called for taxing the “super profits” of oil companies, since the accumulated profits of the five largest companies in the sector (TotalEnergies, Shell, Exxon, Chevron and BP) have settled at $62.5 billion in the second quarter:
For its part, the IMF does not mention the idea of a tax on corporate superprofits to finance energy aid to the most vulnerable. The institution says that only the establishment of a support system for companies is unfavorable, except for those that would be threatened with bankruptcy in the short term due to the rise in energy prices.
Source: BFM TV
