Rising energy prices from the Middle East conflict have significantly impacted euro area household consumption, with lower-income households bearing a disproportionate burden. As a major energy importer, the euro area experiences real income losses from energy price shocks, worsening terms of trade and compressing disposable incomes. Lower-income households, spending around 9% of income on energy versus 5.5% on average, face greater vulnerability due to limited savings and reliance on labor income. A quantitative model shows these households experience twice the consumption decline compared to higher-income groups, highlighting regressive effects. The analysis underscores how energy price shocks amplify through labor income and relative price channels, with liquidity-constrained households suffering most. Elevated prices, expected to persist, threaten to prolong pressure on real incomes and consumption.
© European Central Bank, 2025.
Summary derived from the ECB website (https://www.ecb.europa.eu ).
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