Reduced Real Consumption Wage from Higher Energy Prices
An increase in the prices of essential energy sources, such as oil and gas, leads to a reduction in the real consumption wage. This occurs because households must allocate a larger portion of their budget to cover direct energy costs like heating and transport, as well as indirect costs embedded in other goods and services. The negative impact is more pronounced for lower-income households, as they spend a proportionally larger share of their income on these necessities.
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