The Energy Origins of the Global Inflation Surge

Jorge Alvarez and Thomas Kroen

No 2025/091, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the relationship between energy prices and inflation dynamics in the context of the global inflation surge during the COVID-19 pandemic. Using a comprehensive sector-level dataset covering over 30 countries and a local projections empirical strategy, we extend previous studies that primarily focused on single-country analyses or aggregate inflation measures. Our findings indicate that while the energy shocks of 2021–2022 were remarkable, the degree of inflation passthrough of energy shocks appears to be relatively stable over time. Moreover, we show that energy price shocks significantly influence inflation through stable sectoral channels, with structural characteristics such as energy dependence and price flexibility playing critical roles in the passthrough mechanism. These results underscore the necessity of a sectoral perspective in understanding inflationary pressures and highlight the importance of detailed data on price-setting mechanisms and intersectoral connectivity in understanding the energy-inflation passthrough.

Keywords: Inflation Passthrough; Energy Prices; Production Networks; Price Rigidities; Local Projections.; monetary policy committee; enterprise risk; policy rate remains; fund disbursement; Policy discussion; policy priority; Pakistan CCDR; Climate change; Climate policy; Natural disasters; Global; inflation surge; price flexibility; energy-inflation Passthrough; energy inflation; Inflation; Energy pricing; Oil prices (search for similar items in EconPapers)
Pages: 42
Date: 2025-05-09
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