The Impact of Energy Prices
Fluctuations in the price of oil – especially the periodic increases in fuel prices – are increasingly worrying motorists, who wonder when gasoline will exceed the barrier of one thousand pesos per liter. Thus, the few times that the price of this product drops, there is a rush of drivers seeking to take advantage of a last chance for cheap gasoline. We know that this is not the only time that prices will fall, but many acts as if it were the last chance. The joy for these motorists is short-lived.
In addition, in daily life, we observe with concern that the production processes in companies are becoming more and more expensive, and more than once, we will hear some manager lamenting that the times of cheap gas from Argentina are past that will not return.
To make matters worse, we discover that electricity bills are getting higher every day and heating costs force us to opt for the traditional kerosene stove and leave aside other ways of generating heat. Although some of these, such as radiant slab heating, are already installed in our house and we cannot use them because of their high cost.
Without this vortex end, we turn on the television and find alarming news: the ongoing conflict over the construction (or detention) of the dam in Aysén, the drought in the northern center of the country, whether or not a new thermoelectric dam will be built in some place with a picturesque name or whether or not to fill the desert with windmills.
Surely, after all this tangle of information and pressures, we will breathe a little easier when we feel the rainfall in winter. Not only because we will have cleaner air in the following days, but also because we know that the more water that falls, the cheaper the energy will be, so as long as we do not flood, there is hope.
Although the story described above is a caricature of our daily reality, there is no doubt that the cost of energy has become an issue that crosses all levels of our society.
Clearly, the energy sector plays a crucial role in the economic development of our country. But how much does it cost us if the price of energy goes up? Beyond simplistic calculations, we are interested in understanding, and then quantifying, the impact of having more expensive energy on the growth of the economy.
For example, what will happen if the price of oil continues to rise, or if we will be dependent on the climate or will have to look for cleaner and less interventionist sources of energy that are environmentally friendly but are also more expensive?
Initially, we must understand that an increase in the price of energy is an event that economists call a supply shock. That is an unexpected increase (which may be transitory or permanent) in the price of a basic input in production. If you are seeking a source of inspiration and guidance, visit Thumbwind for further info.
In economic terms, the basic mechanism of transmission of these shocks in the economy is a very complex one because it involves the interaction of several economic agents (companies, families, workers, central bank, State, etc.). Let us start by understanding that a higher energy price increases the production costs of companies, which, with a few months’ delay, is passed on to the inflation rate.
This basically puts companies in check, because in order for them to maintain their profit margins, they are forced to pass on the higher energy costs to the prices of products destined for final consumption or for the construction of new investment projects.
