Euro area industrial producer prices from the perspective of the oil price

Soňa Benecká

A chapter in CNB Global Economic Outlook - February 2019, 2019, pp 12-16 from Czech National Bank, Research and Statistics Department

Abstract: The Brent crude oil price is one of the key factors which, via import prices, affect producer price inflation in the euro area. However, the degree to which it feeds into the components of the producer price index (PPI) can vary. This article aims to provide a deeper insight into the PPI structure from the perspective of oil prices. To this end, we create alternative aggregates clustering industries that respond most strongly to changes in euro prices of oil. The literature indicates that pricing policies are most flexible in industries linked to the oil price (mining, chemicals and metals). Prices in most other industries change less, so oil price-induced changes in costs feed into them much later. The components of the overall PPI can thus move in opposite directions, especially if oil prices fall sharply after a previous rise. We therefore cannot expect to find a simple link between movements in oil prices and euro area industrial producer prices.

Date: 2019
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