How Increased Food and Energy Prices Affect Consumer Welfare
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We analyze the consumer welfare effects of increased food and energy prices and find that the own-price elasticities of both food and energy are relatively inelastic, which explain well the dynamics of the recent soaring food and energy prices. The estimated demand elasticities are then used to analyze the consumer welfare effects of price changes in food and energy. The results indicate that an increase of food and energy prices would incur a substantial consumer welfare loss, which is a heavy burden for low income households.