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

Bardazzi R., Gastaldi F., Iafrate F., Pansini R.V., Pazienza M.G., Pollastri C., 2024 – Energy Policy

Between 2021 and 2023, Italian households experienced an inflationary wave unprecedented since the establishment of the European Monetary Union. Energy prices were the main driver of inflation: in December 2022, inflation for energy goods reached 25.5% in the euro area, while in Italy gas and electricity prices more than doubled compared with January 2021, increasing by 196% and 207%, respectively. This emergency did not affect everyone equally. The burden of inflation fell much more heavily on low-income households, which allocate a larger share of their budgets to essential goods such as energy and food.

This is the context addressed by Rossella Bardazzi, Francesca Gastaldi, Francesca Iafrate, Rosaria Vega Pansini, Maria Grazia Pazienza, and Corrado Pollastri in the article “Inflation and distributional impacts: Have mitigation policies been successful for vulnerable and energy poor households?”, recently published in Energy Policy. Using the microsimulation model of the Italian Parliamentary Budget Office the study assesses the distributional impact of the 2021–2023 price shocks on household expenditure and energy poverty, and evaluates the effectiveness of government mitigation measures.

The main findings clearly show the strongly regressive nature of the 2021–2022 inflation surge. In the absence of support policies, households in the lowest equivalent expenditure decile would have faced an increase in total spending of about 19% in 2022, nearly three times the impact experienced by households in the highest decile. This difference is largely explained by energy prices: for the poorest households, rising energy costs would have increased expenditure by 16.3%, compared with 3.7% for the wealthiest households. Without any intervention, average household expenditure in Italy would have risen by 9.6% in 2022.

The mitigation policies introduced in 2022—a combination of tariff measures (reductions in fuel excise duties, system charges on gas and electricity, and VAT on gas) and cash transfers (social bonuses, one-off payments, and pension indexation)—proved to be broadly effective in containing this impact.

Figure 1 shows that support measures helped mitigate and stabilize the effects of inflation on household expenditure during the transition from the acute phase of 2022 to the gradual easing observed in 2023. In 2022, support was substantial and reduced the impact from 9.6% to 5.1% (tariff discounts contributed -1.6 percentage points and cash transfers -2.9 percentage points). In 2023, as inflationary pressures eased, support measures were scaled back, resulting in a net impact of 5.4%, slightly above the actual inflation rate (4.8% before transfers). The net burden on household expenditure therefore remained almost unchanged over the two years (5.1% and 5.4%).  More importantly, the distributional profile of these policies was progressive. Cash transfers, in particular, fully offset the impact of higher energy prices for households in the first decile, resulting in a redistribution in favor of the most vulnerable groups.

However, the situation worsened in 2023 due to the downsizing of the support package. The withdrawal of more targeted instruments, especially one-off transfers, and the reduction of tariff subsidies, which were not adequately compensated by other measures, again resulted in a regressive outcome. Expenditure for households in the first decile increased by 6.9%, compared with 5.6% for those in the tenth decile, mainly because of higher spending on non-energy goods. The measures that remained in force in 2023 were less effective and less equitably distributed than those implemented in 2022.

A significant part of the analysis is devoted to energy poverty, measured through the Modified-LIHC (Low Income High Cost) indicator, also adopted by ISTAT. This indicator identifies households as energy poor when they combine a residual income—after energy expenditures—below the poverty threshold with excessively high energy costs. The results show that, in the absence of any policy intervention, the share of households in energy poverty would have nearly doubled between 2021 and 2022, rising from 11.4% to 22.5%. The measures adopted prevented this outcome, keeping the share around 11.9% in 2022, although the worsening trend continued in 2023, when it increased to 13.3%. Households in Southern Italy, those headed by individuals over 65, and those with a foreign-born household head were found to be particularly vulnerable.

The research also addresses the issue of energy demand price elasticities, a key factor in understanding household behavioral responses to rising prices. Estimates by expenditure quartile obtained through a pseudo-panel model show short-run elasticities ranging from -0.52 to -0.60 for electricity and from -0.58 to -0.75 for natural gas. The sensitivity analysis conducted by the authors points to a significant risk: applying these elasticities in full to the 2022 scenario would result in reductions in energy consumption that are difficult to reconcile with minimum living standards. Energy self-rationing—the forced reduction of energy use in response to rising prices—represents a silent but serious form of vulnerability that is difficult to capture through expenditure indicators alone.

The study’s conclusions provide valuable guidance for public policy design. The most effective measures in reducing the regressive effects of inflation were redistributive and targeted policies. Means-tested cash transfers generated much more progressive outcomes than generalized tariff interventions. At the same time, the research warns against relying solely on emergency responses: energy poverty is not a temporary phenomenon but a structural one. Policies should therefore combine income support with energy-efficiency measures and access to clean technologies, ensuring that the benefits of the energy transition do not remain the privilege of higher-income households.

The geopolitical tensions that resurfaced in the early months of 2026, which continue to affect the global economic and political landscape, are fuelling a new surge in fossil fuel prices. The effects are rapidly being transmitted to overall inflation, recreating—albeit to a lesser extent—conditions like those examined in this study. In this context, current policy responses appear to rely more heavily on reductions in fuel excise taxes, a measure that is costly for public finances and less effective from a distributional perspective than targeted cash transfers. At the same time, advances in the energy efficiency of residential buildings have fallen short of expectations. Despite the substantial resources devoted to the Superbonus scheme, energy vulnerability among most low-income households has remained largely unchanged.