Saturday, October 1, 2022

Tariffs: What will be the effect of increase in gas, electricity and water on the rate of inflation

Between September and November, the removal of subsidies will begin to be implemented (Photo: Gustavo Gavotti / Infobay)
Between September and November, the removal of subsidies will begin to be implemented (Photo: Gustavo Gavotti / Infobay)

As per the program detailed by the government, Between September and November, the removal of subsidies for electricity, natural gas and drinking water service will begin to be implemented for users with high purchasing power, as well as subsidized consumption limits for mid-segment users., What is the impact of this measure on inflation in the coming months?

According to estimates by consulting firm Equilibra, the direct impact of the tariff splitting process for electricity, gas and water – which ends in March 2023 – on inflation will be around 2 additional percentage points, with one percentage point to be added this year. Inflation and balance will be visible in the first quarter of next year. However, they caution that an increase in electricity supply costs for businesses will affect the final price of the goods and services they sell, so The overall effect will be more than 2 percentage points.

The total savings between electricity, gas and water subsidies would add 0.21 percentage points to GDP and would have been 1.6 percentage points of GDP if implemented from the beginning of the year.

“The total savings between electricity, gas and water subsidies will add 0.21 percentage points to GDP in 2022, with respect to the scenario in which the split does not apply, and 1.6 percentage points to GDP if the scheme is implemented.” will be implemented since the beginning of the year”, clarified the Equilibra report developed by The Economist lorena giorgio,

The government announced the split of rates and limits on gas and electricity consumption with the aim of adjusting spending on energy subsidies and reducing the operating losses of the AISA company to reach a primary red of 2.5% of GDP agreed with the IMF. Removal of subsidy for electricity and gas will depend on the income level of the users and will be done in three phases (20% in September and the rest in November and January). In the case of electricity, the removal would also affect businesses and unions.

The final increase in bills for the highest-income households will almost triple for electricity and almost double for gas.
The final increase in bills for the highest-income households will almost triple for electricity and almost double for gas.

According to the estimates of Equilibra, The final increase in bills that the highest-income households would receive – whereby subsidies would be removed – would nearly triple in the case of electricity and nearly double in the case of gas. (with regional differences). In the case of middle-income households, it is estimated that a quarter of the total may exceed the subsidized monthly limit. Whereas users with social rates will not face changes in their bills.

For its part, consulting firm C&T Assessor Economicos forecast the impact of inflation on the CPI of 4.3% from September 2022 to March 2023 (0.4% for gas, 1% for electricity, 1% for water). and 1.9% through expenses). “To the extent that this affects businesses, it also means higher costs for owners and the possibility of passing on sale prices. For this reason, 4.3% above what we estimate, there is an additional impact that There is an indirect effect due to increase in cost in shops, but it is not easy to assess,” he assured. camillo ticorniaConsulting Director.

On the other hand, there will be a second round effect due to the effect of growth on the cost equation of businesses (especially those more dependent on energy inputs), which will be transferred to a greater or lesser extent in consumer prices.

According to what has been revealed so far on segmentation—the regulation is yet to be disclosed—the impact on the price index, a priori, is limited, given the low participation, predict analysts at consulting firm EcoGo. price index but basically because of the high nominal value of inflation (estimated at 6.5% for August after 7.4% in June).

The consequences of the eventual impact on inflation were estimated according to two conditions: those who did not request the subsidy stop receiving it (case 1) or those who did not request it became the recipients of it. according to the distribution of received or not. (case 2).

The subsidy scheme was announced on 16 August
The subsidy scheme was announced on 16 August

Overall, they expect inflation to contribute 0.3 percentage points (in case 1) or 0.2 percentage points (case 2) from September onwards, with announced increases in electricity and gas. In October, a 10% increase in water rates for all users – agreed before targeting announcements – would contribute only 0.1 percentage points. For November, with the three services already rising simultaneously, a greater impact is expected in the price index reaching between 0.8 and 0.5 percentage points.,

“From an ideological point of view, an upward adjustment in public service rates (as opposed to a reduction in the subsidy account) will affect the inflation dynamics from September in two ways: direct and indirect. First, through the impact of the first round of tariff hikes. That is, the direct impact on account of increase in their bills to the users, but also the impact on the consortium, expenses,” he said. Santiago ManoukianEcolatina Economist.

“another, The effect of the second round will be due to the effect of the increase on the cost equation of businesses. (especially those that are more dependent on energy inputs) which will be transferred to a greater or lesser extent in consumer prices. These effects, together more and more crawling peg Inflation inertia will remain high in the coming months as compared to previous months and with the reopening of joint ventures. On the other hand, the continuation of restrictions on imports, coupled with the development of the exchange rate differential, would be an additional factor to monitor because of its impact on inflationary pressures”, the economist said.

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