19. Oil price shocks and inflation

Despite growing interest in the impact of oil and other energy price shocks on inflation and inflation expectations, until recently this question has not received much attention in the literature. This survey not only presents empirical results for the US economy, but expands the analysis to include other major economies. We find no support for the view that energy price shocks cause high and sustained inflation. Only in the Euro area and in the UK are energy price shocks associated with a material increase in core consumer prices. This helps explain the slightly more persistent response of headline inflation in these countries than in the US or Canada. Inflation is even less sensitive to energy price shocks in Japan. We document that energy price shocks played a more important role in explaining headline inflation in the Euro area in 2021 and 2022 than in the US. This does not mean that energy price shocks have de-anchored inflation expectations, however. While suitable data on long-run inflation expectations are scant, neither for the US nor the UK is there evidence that energy price shocks have materially changed long-run inflation expectations.