Tuesday, 07 February 2023 16:14

High energy prices: who is most affected and why?

Written by Evelyn Alas

Energy prices rose sharply over the last year, a trend that was exacerbated by Russia's invasion of Ukraine. Although energy prices are expected to decrease by 11% in 2023, if that projection materializes, they would still be 75% higher than the average of the last five years in Latin America.

In addition, high prices have caused severe human costs, such as making food unaffordable due to increased transportation costs, causing blackouts in factories resulting in the loss of essential products, and preventing children from studying due to lack of electricity.

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This is partly because energy needs depend on the country's climate, energy prices and cultural norms, and because of different ways of measuring energy consumption or overall consumption across countries.

The scatter plot shows that people with very low or very high consumption levels are less likely to allocate a significant fraction of their consumption to energy.

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The World Bank forecasts that individuals with daily consumption between US$5 and US$20 spend more than 11% on energy, while the world's poorest and richest spend about half as much.

Generally speaking, the middle class suffers the most when energy prices rise.

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This pattern means that in low- and middle-income countries, where almost all households have consumption levels below US$20 a day, higher energy prices will affect the richest more than the poorest.

The multilateral agency says that through a set of appropriate policies, governments can help mitigate the impact of higher energy prices on poor and vulnerable households.

 

Translated by: A.M