Asymmetries in the transmission of energy price increases and decreases to underlying inflation in the euro area and Spain

Pablo Burriel Llombart, Florens Odendahl and Susana Párraga Rodríguez
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Pablo Burriel Llombart: Banco de España
Florens Odendahl: Banco de España
Susana Párraga Rodríguez: Banco de España

Economic Bulletin, 2024, issue 2024/Q1, No 06

Abstract: Rationale Energy prices rose sharply in early 2022 and then began to decline towards the end of the year. Given this situation, it is worth analysing whether an energy price increase raises underlying inflation more than an energy price decrease reduces it. Takeaways •Over a one-year horizon, a large hike in energy prices increases underlying inflation by around twice as much as an equivalent decrease reduces it. •The asymmetry in the response of underlying inflation to changes in energy prices is greater in components that use more energy in their production process. •Although asymmetry can be identified by analysing historical relationships, there is considerable uncertainty about the validity of such patterns in the current setting, which can be characterised by unprecedentedly large shocks that have driven both energy prices and underlying inflation.

Keywords: Asymmetry; energy prices; inflation (search for similar items in EconPapers)
JEL-codes: C32 E31 Q43 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bde:journl:y:2024:i:01:n:06

DOI: 10.53479/36173

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