Oil price pass-through along the price chain in the euro area

Abstract

This paper analyzes how oil price shocks are transmitted downstream to producer and consumer prices in the euro area at the highest disaggregate level. In doing so, we first generate an appropriate database that identifies each industrial production sector with its corresponding price of consumer goods for the euro area. We next estimate a constrained vector autoregressive model. Our findings show a statistically significant increase in producer prices after an oil price shock for branches with high oil consumptions, although this statistical pass-through is only partial. However, there is no evidence of a significant oil price pass-through to consumer prices for most branches, which suggests the adaptability of European producers from the most branches to higher oil price pressures without transmitting them to consumers (exceptions: mining, chemical and metal).

Do Renewables Shield Inflation from Fossil Fuel-Price Fluctuations?

“…There is a rich literature examining the impact of oil price fluctuations on inflation. Their passthrough to consumer and producer price inflation (Chen, 2009;Clark & Terry, 2010;Gao et al, 2014;Castro & Jiménez-Rodríguez, 2017;Conflitti & Luciani, 2019;Wen et al, 2021;Baba & Lee, 2022) as well as inflation expectations (Wong, 2015, C. C. Binder, 2018, Kilian & Zhou, 2022, C. Binder & Makridis, 2022) is well documented. The effect of an oil price change depends on whether that change is driven by negative supply or positive demand shocks (Kilian, 2008;Kilian, 2009;Peersman & Van Robays, 2012;Baumeister & Peersman, 2013).…”

The Distributional Implications of the Impact of Fuel Price Increases on Inflation

“…Another set of studies traces back the time-varying effect to the underlying sources of oil price changes (seeKilian (2009), Peersman and Van Robays (2012), and Baumeister and Peersman, 2013 5 There also several regional studies that show that inflation reacts to changes in fuel prices (see for instance for the Euro area:Álvarez et al (2011) andCastro and Jiménez-Rodríguez (2017); and Caceres, Poplawski-Ribeiro and Tartari (2013) for Central African countries).6 These structural characteristics include among others the share of food and fuel in the CPI, past inflation history, central bank independence and the quality of governance. ©International Monetary Fund.…”