Carbon pricing and <i>fossilflation</i> – the impact of the energy crisis

The influence of fossil fuel costs in electricity generation, as well as the impact of carbon pricing on final consumer prices, was analysed using a panel vector autoregressive model for EU countries over the period 2015–2023. It was found that increases in energy commodity prices primarily affect retail energy inflation — a 10% rise in the effective price of natural gas used in energy generation was estimated to raise inflation by 0.55 percentage points, while crude oil was associated with an increase of 0.75 percentage points. A significant impact of the EUA ETS (0.6%) was observed, which has been intensified by the energy crisis. A moderate effect on food prices was identified, whereas no second-round effects were detected in the case of core inflation. The impact of carbon pricing on the prices of industrial goods and services was found to be limited.