Introduction
In recent years, the term "energy crisis" has become a household term across the globe. The dramatic rise in energy prices has been cited as a key driver of inflation, prompting governments to intervene with various support measures. However, a report by Gert Peersman, Koen Schoors, and Milan van den Heuvel from the Department of Economics at Ghent University presents a compelling case that challenges the prevailing narrative around the energy crisis in Belgium.
Key Findings
The report analyzes the energy bills of 930,000 Belgian families, providing a detailed and nuanced picture of the real impact of the energy crisis. Here are some of the standout findings:
1. Actual Energy Cost Increase: While official statistics suggest an average increase of 81% in energy costs from 2018 to 2022, the reality for most families was much less severe. Bank transaction data revealed that the median family saw only a 1% increase, with the average increase being 17%. Remarkably, 47% of families paid less for energy in 2022 than in 2021 when taking into account all the government support that was issued.
2. Discrepancies Explained: Three primary factors contribute to the difference between official statistics and actual costs:
- Contract Type: The consumer price index (CPI) in Belgium considers only new energy contracts, while many households maintained fixed-rate contracts from before the crisis.
- Consumption Changes: Official figures are based on pre-pandemic consumption levels. In reality, many families reduced their energy consumption during the crisis through behavioral changes and energy efficiency investments.
- Government Support: The spread of government support over time in statistics differs from the immediate relief experienced by families, leading to an overestimation in official figures.
3. Overestimation of Inflation: The misalignment between actual costs and the CPI resulted in an overestimation of inflation by 3.3%-points on average in 2022. This miscalculation led to an increase in wages and benefits higher than the actual loss of purchasing power due to the automatic indexation of wages in Belgium**.
Implications and Recommendations
The findings have significant implications for policy and economic planning. The overestimation of inflation has caused wage and benefit increases that do not align with the real economic impact on families. As energy prices stabilize and government support recedes, the CPI will likely show a lower increase than the actual rise in energy costs, potentially leading to a period of higher inflation in real terms for families. [UPDATE: this is exactly what was found in follow-up research here]
Policy Recommendations:
- Adjusting the CPI Calculation: The report recommends using actual energy contracts that can be provided by energy suppliers (and which is done in other European countries already) to calculate the CPI to avoid unwanted fluctuations in purchasing power and competitive positioning of companies. This adjustment would provide a more accurate reflection of economic conditions and help stabilize wages and benefits.
Conclusion
The research by Ghent University economists underscores the complexity of the energy crisis and its varied impact on households. By highlighting the discrepancies between official statistics and real-world data, the report calls for more accurate measurement tools and thoughtful policy adjustments to better support families and stabilize the economy. As we navigate the post-crisis period, these insights will be crucial in shaping effective and equitable economic policies.
**Clarification on Automatic Indexation in Belgium
In Belgium, automatic indexation is a mechanism that links wages and social benefits to the consumer price index (CPI) to protect purchasing power against inflation. When the CPI rises by 2%, wages and benefits are automatically adjusted through a spillover index to match the increase in the cost of living. This system aims to ensure that employees and benefit recipients maintain their purchasing power despite inflationary pressures. However, as this report highlights, inaccuracies in CPI calculations can lead to misaligned adjustments, either overcompensating or undercompensating households for changes in their cost of living.
Read the full report here (machine translated to english):
Full original report (in dutch): https://www.ugent.be/eb/economics/en/research/gei/gei9