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

Following the sudden increase in the energy price in the second quarter of 2022 caused by the Russia-Ukraine war, inelastic demand generated significant changes in household expenditure shares for energy (particularly in electricity, gas, and other fuels and in fuels and lubricants). These produced a significant downward bias in the official CPI inflation rate for energy and in the official CPI inflation rate for all items in the UK. The downward bias was significantly higher in the European Union in 2022, specifically in Belgium, Estonia, Ireland, Greece, Italy, Cyprus, Lithuania, the Netherlands, Romania, and Slovenia. • A downward bias in the official CPI inflation figure is detected in 2022 for the UK and European Union. • The sudden increase in energy prices in the second quarter of 2022 followed from the Russia-Ukraine conflict that began 24th of February 2022. • The rise in the energy price and its inelastic demand has generated significant changes in household expenditure for energy. • The downward bias is significantly higher in Belgium, Ireland, Greece, Italy, Cyprus, the Netherlands, Romania, and Slovenia.