Inflation and distributional impacts: Have mitigation policies been successful for vulnerable and energy poor households?

Abstract

The aim of this paper is to assess the distributional impact of the 2021–23 price increase on Italian household expenditure and energy poverty. Using the microsimulation model developed by the Italian Parliamentary Budget Office, the analysis provides a comprehensive assessment of the uneven impact of inflation across the population and measures how mitigation policies have compensated for this impact. In particular, we focus on vulnerable households to examine whether energy poverty has been affected by the rise in energy prices and to what extent policies have succeeded in protecting these families. Our main findings show that in 2022, mitigation policies have stabilised the impact of inflation by compensating households for almost half of the effect of the price shock on their expenditure. Although not particularly well targeted at energy-poor households, the mitigation policies have protected households from a worsening of their energy vulnerability. However, the reduction of support measures adopted in 2023 is expected to increase the area of vulnerability, including households that are particularly sensitive to high energy costs. Finally, the behavioural response of households was also considered by estimating price elasticities of energy demand and measuring their impact on the simulated scenarios using a sensitivity approach.