Inflation expectations and time variations in the oil price pass‐through

Daniel Gründler

Economic Inquiry, 2026, vol. 64, issue 2, 663-680

Abstract: Previous literature suggests that the pass‐through of oil price shocks to inflation rates became weaker since the 1970s. I use a time‐varying parameter VAR to show that this trend has recently been reversed with headline and core inflation rates responding more sensitive to oil price shocks. Based on a counterfactual analysis, I offer evidence that increasingly important second round effects propagated via inflation expectations play a key role for these dynamics. Finally, I illustrate that oil price shocks in general and this expectation channel more specifically contributed substantially to the recent surge in inflation rates.

Date: 2026
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