Volatile energy markets, consumers and energy price expectations

Abstract

We conduct a survey of consumers in four EU countries (the Czech Republic, Germany, Italy and Poland) faced with supply disruptions, rising energy prices, and serious concerns about both prices and actual availability of energy inputs due to Russia's war on Ukraine. We find that people are aware of the current prices of motor fuels, and willing and able to form expectations for them in one, six, 12 and 60 months. The mean annual rate of growth of prices is positive, exceeds or is equal to the current inflation rate, is greater than the long-run inflation rate in the last 10—20 years, and declines with the length of the horizon over which the respondents are to form their expectations. At least one-third of the respondents expect the prices to decline in the future, and about one-quarter expect them to stay the same. The expectations are affected by the individual characteristics of the respondents and their beliefs about the causes of the current state of the energy markets. The behavioral responses announced by the respondents (change travel mode, reduce driving, replace their car with a more fuel-efficient one, etc.) appear to be realistic and well thought-out, and depend on the expected direction of the expected price changes, rather than their magnitude. By contrast, our respondents struggle with grasping the current prices per unit of electricity or natural gas, and envision higher, and considerably more uncertain, growth rates for them.