2023-08-13 13:44:20
Energy, food, money costs and weather conditions will determine the amount of “winter” charges
How much will electricity, natural gas and oil cost this winter? Will the rally in food prices continue, which has seen staples sell for as much as 60% more than two years ago? Will lending rates hit a ceiling? And what will be the weather conditions that will prevail in the country this year? Will there be a repeat of last year’s mild winter that kept down the consumption of energy products, “protecting” household income? The winter of 2023-2024 will be full of uncertainties but also different data compared to the corresponding last year.
Fact 1: Everything will be much more expensive than last year, even… money. No matter how inflation develops, it is certain that any product and any service will cost more.
Fact 2: There won’t be the fiscal margins of last winter. Both the 2023 budget and the corresponding 2024 budget are very “squeezed”, while both official institutions and markets are closely watching Greece demanding that commitments to return to primary surpluses be met.
Fact 3: Europe has changed its rhetoric compared to last year. Seeing the markets pushing through bond yields for measures to improve debt sustainability, it in turn asks the governments of the member countries to limit the support measures and, if they need to extend any of them, to do so in an absolutely targeted to support only vulnerable households. All this suggests that this winter may be more difficult than last year’s for households, as even those who have seen an increase in their income, it does not cover the increased cost of living.
No matter how inflation develops, it is certain that any product and any service will cost more.
There are four main fronts from the developments, which will also determine the final costs that each household will be asked to bear during this winter:
1. The energy front. The sharp increases of the last few weeks have shown that it is difficult to bet on the maintenance of low prices for a long time. The international price of oil within a few weeks climbed from 72 to 87 dollars. In practice, if the winter season started today, a liter of heating oil would cost even more than 1.4-1.45 euros per liter, i.e. more than last year ended. Accordingly, the price of natural gas rose by 40% within two 24 hours (it now hovers above 36-37 euros per megawatt hour) while derivatives show a further rise for the coming months. As far as electricity is concerned, the price has been in the range of 100-120 euros per megawatt hour in recent weeks, but the final cost for the consumer will also depend on other factors such as the intervention policy that the state will follow. For now, the best case scenario predicts that we will pay for electricity at least 30% more expensive compared to pre-crisis levels.
2. The food front. Most basic food items are selling at least 30% more expensive than two years ago. Among the products with the largest price appreciation in the two years are sugar with a percentage of 62.46%, olive oil with a percentage of 51.39%, potatoes with a percentage of 46.55%, flour and cereals with a percentage of 39.08%, while in Bread is also +32%. At present, there is no sign of price stabilization. The opposite: Inflation, especially in the food sector, is still “running” at a double-digit rate. There will be a de-escalation from the autumn (also for technical reasons since this year’s prices will be compared to last year’s increasingly high ones), but the accuracy will become increasingly greater.
3. The cost of money. This winter, whether the ECB proceeds with another rate hike in September or not, will find us with the highest cost of money in the last 10 years. It is possible that the installments of informed mortgage loans have been “frozen” at the levels of last March, however the installments of all loans (inc. not all loans have been “frozen”) are higher compared to the corresponding last years. Indicative that the average interest rate of all loans based on data from the Bank of Greece is currently at 6.14% compared to 5.01% last December. And in deposits, the increase is clearly smaller: 0.37% in June from 0.09% last December.
4. Weather conditions. It is a key volatile factor. As was seen this summer, a few days of heat were enough for the GDP to be “hit” either through the increase in energy costs or the loss of working hours. The winter of 2022-2023 was characterized by mild weather conditions. It remains to be seen if the same will happen this year. In the event of worsening weather conditions, there will be an increase in energy costs not from the price side, but from the consumption volume side.
There is little scope for new support measures
The data will be different this winter, and with regard to the margins of state intervention to deal with any problems that arise. The winter of the period 2022-2023 developed on the basis of two state budgets, during the execution of which the so-called escape clause was active. This practically meant more freedom of movement for the economic staff in terms of the amount of primary surpluses. On the contrary, this winter will “touch” two budgets that must bring – cumulatively – primary surpluses of more than 7 billion euros (around 2.5 billion euros in this year’s budget and at least 4.5 billion euros in the 2024 budget) , which obviously narrows the room for movement. So if the two budgets involved with last winter (2022 and 2023) had to show surpluses of 2.5 billion euros (i.e. zero in 2022 and 2.5 billion euros in 2023), in this winter the it has risen by around €4.5 billion more (€2.5 billion in the 2023 budget and €4.5 billion in the 2024 budget).
Surplus production between 0.7%-1% is written in… stone as investment grade is at stake.
This automatically means less scope for support measures. Already, the economic staff is also measuring the latest development that has a fiscal impact in order to determine whether there is room for additional support measures within 2023. The production of a primary surplus in the region of 0.7%-1% is written in… stone, as between for others, the recovery of investment grade is also at stake. Thus, given that an additional budget of 700 million euros has already been submitted to finance the three-month market pass, as well as the increased operating costs of the State, the additional resources are being sought that will allow the government to announce – most likely at the TIF – the further expansion of market pass, in order to cover the fourth quarter of the year, the financing of the heating allowance, but also the extraordinary financial support for pensioners who will not get an increase from 1.1.2024 due to a personal difference.
The margins are limited (possibly even more limited compared to 2023) for 2024. In the budget that will cover the second half of this winter, there is no longer an escape clause. On the contrary, there is a stricter fiscal target (i.e. a primary surplus of more than 2%) and zero scope for taking support measures of a massive nature. Automatically, this means that it will not be easy – for example – to extend the electricity subsidy mechanism beyond 1.1.2024. Measures will only be available for vulnerable households (note that these are also expected to be announced to the TIF). Well, without the mechanism for electricity, but also without the horizontal subsidy on the price of heating oil, it is very likely that this winter will cost more in terms of energy than last year.
Electricity
With the electricity price equalization mechanism active, retail kilowatt hours are expected to move in the 15-minute range by the end of the year. From the new year, it will depend on market conditions. Without a horizontal government subsidy, the wholesale price would have to fall below €100 to avoid a surcharge on current levels.
7 billion euros the primary surplus to be produced in the two years 2023-2024, from 2.5 billion euros in the two years 2022-2023.
Natural gas
Despite the large drop in the market price of natural gas – last year it reached 120-130 euros per megawatt hour in the winter and is currently in the region of 40 euros – it is not certain that the retail price will be lower this year. At the moment the kilowatt hour is sold for 7-8 cents (clearly more expensive than the pre-crisis levels), while it is almost certain that the horizontal subsidies given last year will be missing this year.
Adverse weather conditions in winter can cost households 30 million euros per day due to an increase in energy consumption.
Oil
Last year’s winter season ended with heating oil at 1.25 euros due to the horizontal subsidy given by the state. This year, if the price of oil remains at current levels, a liter will cost more than 1.4 euros without the government subsidy.
Source kathimerini.gr
Thanos Tsiros
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