Oil Price Shocks and Inflation

Lutz Kilian and Xiaoqing Zhou

No 2312, Working Papers from Federal Reserve Bank of Dallas

Abstract: 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. This survey not only presents empirical results for the U.S. economy, but expands the analysis to include other major economies. We find that only in the euro area and in the U.K. energy price shocks are associated with a material increase in core consumer prices. This helps explain the somewhat more persistent response of headline inflation in these countries than in the U.S. 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 U.S. 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 U.S. nor the U.K. is there evidence that energy price shocks have materially changed long-run inflation expectations.

Keywords: inflation; oil price; gasoline price; inflation expectation; wage-price spiral (search for similar items in EconPapers)
JEL-codes: E31 Q43 (search for similar items in EconPapers)
Pages: 36
Date: 2023-08-24
New Economics Papers: this item is included in nep-ene and nep-mon
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Citations: View citations in EconPapers (1)

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DOI: 10.24149/wp2312

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