Type of the article: Research Article
Abstract
Europe’s post-2022 energy shock has renewed concern about electricity markets as an inflation channel. This paper quantifies how shocks to day-ahead electricity prices and the share of renewables are transmitted to consumer inflation and tests whether the Russia–Ukraine war altered these pass-through mechanisms, thus informing public governance. A harmonized monthly panel for 26 European countries from 2019 to 2025 combines HICP inflation and industrial producer prices with electricity prices and the share of RES, and generates estimations using the TWFE model, event-study dynamics, and generalized synthetic control. Results show that the direct pass-through from wholesale electricity prices to monthly HICP is small and short-lived: Event-time profiles indicate one-month responses that revert to zero within two to three months once producer-price pressures and common shocks are controlled for. In contrast, industrial producer prices have a significant impact, adding approximately 0.05 percentage points to the monthly HICP for each 1 percentage point increase in producer prices. In comparison, the war-period average treatment effect on inflation is close to zero (≈ 0.004 percentage points) after accounting for latent factors. A higher share of RES is associated with modestly lower inflation and attenuates the marginal impact of electricity-price spikes, leading to smaller and less persistent responses in such systems. Public governance should prioritize de-risking renewable investment, strengthening system flexibility, and managing broader cost-push pressures rather than relying on price suppression in electricity markets. Targeted consumer protection, transparent retail pass-through rules, and forward-looking risk monitoring emerge as key elements of a more sustainable price-stability strategy.
Acknowledgment
The project was funded by the European Union’s Horizon 2020 Research and Innovation Programme on the basis of the Grant Agreement under the Marie Skłodowska-Curie funding scheme No. 945478 – SASPRO 2 and through the MSCA4Ukraine project 06030419. Views and opinions expressed are, however, those of the authors only and do not necessarily reflect those of the European Union, the European Research Executive Agency, or the MSCA4Ukraine Consortium. Neither the European Union nor the European Research Executive Agency, nor the MSCA4Ukraine Consortium as a whole, nor any individual member institutions of the MSCA4Ukraine Consortium can be held responsible for them.
