TheEnergyOriginsoftheGlobalInflationSurge

JorgeAlvarez,ThomasKroenWP/25/144

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TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.

2025

JUL

?2025InternationalMonetaryFund WP/25/144

IMFWorkingPaper

ResearchDepartment

TheEnergyOriginsoftheGlobalInflationSurgePreparedbyJorgeAlvarezandThomasKroen*

AuthorizedfordistributionbyDenizIganMay2025

IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.

ABSTRACT:ThispaperinvestigatestherelationshipbetweenenergypricesandinflationdynamicsinthecontextoftheglobalinflationsurgeduringtheCOVID-19pandemic.Usingacomprehensivesector-leveldatasetcoveringover30countriesandalocalprojectionsempiricalstrategy,weextendpreviousstudiesthatprimarilyfocusedonsingle-countryanalysesoraggregateinflationmeasures.Ourfindingsindicatethatwhiletheenergyshocksof2021–2022wereremarkable,thedegreeofinflationpassthroughofenergyshocksappearstoberelativelystableovertime.Moreover,weshowthatenergypriceshockssignificantlyinfluenceinflationthroughstablesectoralchannels,withstructuralcharacteristicssuchasenergydependenceandpriceflexibilityplayingcriticalrolesinthepassthroughmechanism.Theseresultsunderscorethenecessityofasectoralperspectiveinunderstandinginflationarypressuresandhighlighttheimportanceofdetaileddataonprice-settingmechanismsandintersectoralconnectivityinunderstandingtheenergy-inflationpassthrough.

RECOMMENDEDCITATION:Alvarez,Jorge,andThomasKroen(2025).“TheEnergyOriginsoftheGlobalInflationSurge”.IMFWorkingPaperNo.25/144(Washington,DC:InternationalMonetaryFund).

JELClassificationNumbers:

D57,E31,E37,Q43

Keywords:[TypeHere]

InflationPassthrough,EnergyPrices,ProductionNetworks,PriceRigidities,LocalProjections.

Author’sE-MailAddress:

jalvarez@,

tkroen@

*TheauthorswouldliketothankEmineBoz,AlbertoMusso,Jean-MarcNatal,GalipKemalOzhan,NicholasSander,SebastianWende,andSihwanYangfortheircollaborationandhelpfulcommentsonthiswork.TheauthorsalsothankKazuhiroHirakiandDenizIganforhelpfulcomments,andWeiliLinandCanranZhangforexcellentresearchassistance.Theviewsexpressedhereinarethoseoftheauthor(s)andshouldnotbeattributedtotheIMF,itsExecutiveBoard,orIMFmanagement.Anyerrorsoromissionsaretheresponsibilityoftheauthor(s).

PAGE

10

TheEnergyOriginsoftheGlobalInflationSurge

JorgeA.AlvarezInternationalMonetaryFund

ThomasKroen?

InternationalMonetaryFund

Date:May2,2025

Abstract

ThispaperinvestigatestherelationshipbetweenenergypricesandinflationdynamicsinthecontextoftheglobalinflationsurgeduringtheCOVID-19pandemic.Usingacomprehensivesector-leveldatasetcoveringover30countriesandalocalprojectionsempiricalstrategy,weextendpreviousstudiesthatprimarilyfocusedonsingle-countryanalysesoraggregateinflationmeasures.Ourfindingsindicatethatwhiletheenergyshocksof2021–2022wereremarkable,thedegreeofinflationpassthroughofenergyshocksappearstoberelativelystableovertime.Moreover,weshowthatenergypriceshockssignificantlyinfluenceinflationthroughstablesectoralchannels,withstructuralcharacteristicssuchasenergydependenceandpriceflexibilityplayingcriticalrolesinthepassthroughmechanism.Theseresultsunderscorethenecessityofasectoralper-spectiveinunderstandinginflationarypressuresandhighlighttheimportanceofdetaileddataonprice-settingmechanismsandintersectoralconnectivityinunderstandingtheenergy-inflationpassthrough.

JELcodes:D57,E31,E37,Q43

Keywords:InflationPassthrough,EnergyPrices,ProductionNetworks,PriceRigidities,LocalProjections.

?Email:

jalvarez@

and

tkroen@

TheauthorsthankEmineBoz,AlbertoMusso,Jean-MarcNatal,GalipKemalOzhan,NicholasSander,SebastianWende,andSihwanYangfortheircollaborationandhelpfulcommentsonthiswork.TheauthorsalsothankKazuhiroHirakiandDenizIganforhelpfulcommentsandWeiliLinandCanranZhangforexcellentresearchassistance.Theviewsexpressedhereinarethoseoftheauthor(s)andshouldnotbeattributedtotheIMF,itsExecutiveBoard,orIMFmanagement.Anyerrorsoromissionsaretheresponsibilityoftheauthor(s).

Introduction

Theglobalinflationsurgeof2021-2022duringaperiodoflargeenergypriceshocksbroughtquestionsaboutthepassthroughofenergyshocksintoconsumerpricestothespotlight.Theenergyshockswerelargebyhistoricalstandards,withvariationacrossgeographiesbasedonthecompositionofenergyinputs,theadaptabilityofenergygenerationsystems,andtheelasticityofenergyinputswithrespecttotheunderlyingsupplyshocks.ThecaseofEuropeisacaseinpoint,withthewarinUkrainedisruptinggassupplylinesand”thepricesofoil,coalandgas[increasing]byaround40%,130%and180%respectively”(Adolfsenetal.,2022).Effectsweremoremoderatebutstillsharpinotherregions.Thispaperusesthisvariationtodocumentthemagnitudeofthepassthroughofenergypricesurgesduring2020-2024intooverallinflation,determinethestructuraldeterminantsbehindthecross-countryandcross-sectorvariation,andassesshowthepassthroughofenergypricesintoinflationduringtherecentinflationepisodecomparestohistoricalepisodes.

Ex-anteitisunclearhowenergypricepassthroughduringtheCovidperiodshouldcomparetopriorperiodsofinflationsurges.Whilemodelswithpriceadjustmentfrictions(AlvarezandNeumeyer(2020),CaballeroandEngel(2007),Cavalloetal.(2023),GolosovandLucasJr(2007),KaradiandReiff(2019))wouldpredictunchangedpassthroughconditionalonthesizeoftheshock,BernankeandBlanchard(2023)showthatthestrengthofenergypricepassthroughwilldependonthestrengthofwage-pricefeedbacks.Ifthosewerestrongerduringthepandemicthanbefore,strongerpassthroughwouldbeexpected.Ourpaperprovidesanempiricaltesttodistinguishbetweenthesecompetinghypotheses.

Ouranalysisdocumentsthreefactsonthepassthroughofenergyshocksintoinflation.First,whilethemagnitudeofthe2021-2022energyshockwasremarkable,theextentofitspassthroughintoheadlineinflationatthecountry-levelwasgenerallycomparabletopreviousepisodes.Usingapanelofmorethan30countries,weshowinalocalprojectionsframeworkthatthepassthroughcoefficientremainedstableonaverage,contradictingthehypothesisofapotentiallystronger-than-usualtransmission.Thiswastruebothinadvancedeconomiesandinemergingmarketsinoursample.Thefindingsuggestsacertainstructuralrigidityintheinflationaryresponse,eveninthefaceoflargeenergyshocks.ThesefindingsarerobusttousingtheKa¨nzig(2021)oilsupplynewsshocksasaninstrumentforenergyprices.

Second,thepaperprovidesevidenceofnon-lineareffectsinthepassthroughofenergyprices.Thecountry-levelpassthroughfromenergypricesintoheadlineinflationisstrongerwhenthechangeinenergypricesislarger,consistentwithmodelswherefirmsaremoreresponsivetolargershocksduetopriceadjustmentfrictions(AlvarezandNeumeyer(2020),Cavalloetal.(2023),KaradiandReiff(2019)).Yet,thepaperfindsnosignificantchangeinthesenon-linearitiespost-2020.Thislackofabroad-basedstrengtheninginthepassthroughimpliesthatwhileenergypricesimpactinflation,thesizeofthepassthroughconditionalonthesizeoftheshockremainsrelativelypredictableinitsnon-linearity,anotableinsightgiven

thescaleofrecentpricechangesandthevarietyofenergyinputs.Thissuggeststhatstablestructuralcharacteristicsshapethepassthroughofenergypricesintoheadlineinflation.

Third,forabetterunderstandingofthesestructuralcharacteristics,wedelveintosector-leveldataandhighlightthecriticalroleofsectoralattributes,inparticularenergyinputde-pendenceandpriceflexibility,ininfluencinghowenergyshockstransmitthroughproductionnetworksandintoaggregateinflationmeasures.Thesefindingsunderscoretheimportanceofsectoralheterogeneity,suggestingthatenergy-intensivesectorswithmoreflexiblepricingstructuresmaypropagateshocksfasterandmorestronglycomparedtomorerigid,lessenergy-dependentsectors.Theresultsareconsistentwithinput-outputlinkagesbetweenheterogeneoussectorsplayingaroleinshapingthestable,non-linear,aggregateenergypassthrough.

Theliteratureonthepassthroughofenergypriceshockstoinflationhasexploredvarioustheoreticalandempiricaldimensions,sheddinglightonthemechanismsthroughwhichenergypricefluctuationsinfluenceaggregateinflation.Ourpapermakestwoprimarycontributionstotheliterature.

First,thepapercontributestotheliteratureoninflationdynamicsduringtheCOVID-19pandemicbyincorporatingasectoraldimension.Thissectoralapproach,enhancedbyrecentdatafromtheCovid-19period,providesatimelyanddetailedperspectiveonhowstructuralsectoralcharacteristics—notablyenergydependenceandpriceflexibility—shapeinflationaryoutcomesacrosseconomies.SeveralrecentstudiesexploreinflationdynamicsduringtheCOVID-19pandemic,includingBalletal.(2022),Cavalloetal.(2024),andDaoetal.(2024)examininghowpandemic-relatedsupplychaindisruptionsandpolicyresponsesdroveaggregateinflationdynamicsintheUSandglobally.Thesestudiessuggestthatthepost-pandemicperiodexhibitedincreasedsectoralheterogeneity,reinforcingtheimportanceofanalyzingsector-specificinflationresponses.Chenetal.(2024)documentthecontributionoflabormarketstotheCovidinflationsurgewhileOcampoetal.(2022)discussalternativeinflationmeasuresthatstripoutvolatileinflationcomponentsbeyondfoodandenergy.Bobasuetal.(2024)showhowenergypriceshocksaffectthetransmissionofmonetarypolicywhileBoecketal.(2025)andPatzeltandReis(2024)studytheimpactofenergypriceshocksoninflationexpectations.Lafrogne-Joussieretal.(2023)providefirm-levelevidenceonthepassthroughfrominputpricesurges.Additionally,Miyamotoetal.(2024)provideevidenceonenergypricepassthroughattheZLBrelativetonon-ZLBtimeswhileAruobaandDrechsel(2024)analyzetheimpactofmonetarypolicyshocksonsectoralinflationoutcomes.TheroleofglobalandcommonfactorsininflationhasalsobeenexaminedbyAueretal.(2024),whodocumentthatenergypriceshockscontributetosynchronizedinflationmovementsacrosscountries.Euro-area-specificstudies,suchasAdolfsenetal.(2024),AlessandriandGazzani(2025),BabaandLee(2022),Casolietal.(2024),CorselloandTagliabracci(2023),andHansenetal.(2023)investigateregionalvariationsinenergypassthroughandmonetarypolicy.

Second,ourpaperextendspreviousstudiesontheenergy-inflationpassthrough,whichoftenfocusonsingle-countryanalysesorcross-countrystudiesusingaggregateinflationmeasures.

Byleveragingadatasetthatcoversover30countrieswithsectoralgranularity,ourpaperoffersabroaderandmorenuancedviewofhowenergypricestransmitacrossdifferentsectors.Earliercontributions,includingAbdallahandKpodar(2023),Choietal.(2018),ClarkandTerry(2010),andDeGregorio(2012),provideevidenceonthestrengthandpersistenceofenergypricepassthroughduringthepre-Covidperiod.Silvaetal.(2024)highlightdifferencesbetweenthepassthroughofenergyshocksandshockstoothercommodityprices.Relativetothisliterature,ourcontributionshowsthatpassthroughduringtheCovidperiodwascomparabletopriorepisodesbuttheunderlyingenergypriceshockswereextraordinarilylarge.Moreover,weprovidenovelevidenceonthekeyimportanceofsectoralheterogeneity.

Thirdthepaperprovidesreduced-formevidenceonenergypricepassthroughfromacross-countrypanel,documentingempiricalregularitiesthatcanbeusedasinputstodisciplinestructuralmodellingwork.RecentstudiesonthepassthroughofenergypriceshocksusingastructuralmodelingapproachcomplementedwithempiricalevidencefortheUnitedStatesinclude(AfrouziandBhattarai(2023),Afrouzietal.(2024),GagliardoneandGertler(2023),andMintonandWheaton(2023)).Afrouzietal.(2024)developatheoreticalframeworkandpresentempiricalevidencethatoilpriceshocksactakintonegativesupplyshocks.Similarly,MintonandWheaton(2023)examinethespeedofdownstreamtransmissionofenergyshocksusingProducerPriceIndex(PPI)data,emphasizingtheroleofsupplychainfrictionsandinput-outputlinkages.GagliardoneandGertler(2023)analyzethepropagationofupstreamenergyshocks,findingthatsectoralcharacteristicsandmonetarypolicyresponsesarecrucialindeterminingtheextentofinflationaryspillovers.Relativetothesepaperswetakeaglobalperspectiveandfocusonoverallenergypricepassthrough,ratherthanmorenarrowlydefinedoilpricepassthrough.

Finally,furtherresearchhasanalyzedtheroleofsectoralcharacteristicsinshapinginflationtransmission.Alvarez-Blaseretal.(2024)highlighthowfirms’pricingstrategiesandinputcoststructuresinfluencethemagnitudeandspeedofpassthroughfromsectoralshocks.Severalpapersdiscussmonetarypolicyinmodelswithproductionnetworksandsectoralinput-outputlinkages(La’OandTahbaz-Salehi(2022),Rubbo(2023),Silva(2023)).Ourpaperdoesnotmakeastructuralcontributionbutprovidesempiricalestimatesthatcanbeusedasaninputtodisciplinestructuralmodelestimation.

Therestofthepaperproceedsasfollows.SectionAdescribestheaggregatecross-countryandsector-leveldatasetsused.Section3providesdescriptiveevidenceonaggregateenergypricedynamicsandtheheterogeneityinsectoralenergypricepassthrough.Section4outlinestheempiricallocalprojectionsframeworkandpresentsthekeyfindings,whilesection5concludes.

Data

Thepaperusesaggregatedatatoassessthepassthroughofenergyinflationintooverallinflationatthecountry-levelandsectoraldatatoassesssectoralpassthroughdynamics.We

describeeachgroupofdatasetsbelow.AdditionaldetailsareprovidedinannexA.

AggregateData

Atthemacrolevel,weusequarterlydataonCPIinflationandGDPgrowthfromtheIMFWEOdatabase.OutputgapsareestimatedusingaunivariateHP-filter.Oil,gas,and,coalpricesarefromtheIMF’sPrimaryCommoditiesdatabase.Forglobaloilandgasprices,weusetherespectiveglobalindicesinthedatabasethataggregatetheunderlyingoil(Brent,DubaiFateh,WTI)andgas(American,European,Japanese)priceindicesintoaglobalindex.NominaleffectiveexchangeratesandenergyinflationarefromHaverAnalytics.Country-levelenergyinflationismeasuredusingHaverAnalytics’quarterlyseasonallyadjustedenergyHICPindex.

SectoralData

Atthesectorallevel,weprimarilyrelyontwotypesofdata:sectoralinflationdataanddataonsectoralinput-outputlinkagestoconstructenergydependencemeasuresatthesectorallevel.

First,wesourcesectoralnominalandrealvalueaddedfor11sectorspercountryfromtheOECDValueAddedbyActivitydatabase.WesupplementthisdatawithsectoralBEAdatafortheUSandHaverAnalyticsdataforBrazil.Sectoralvalueaddeddeflatorsareconstructedasthedifferencebetweenquarterlynominalandrealvalue-addedgrowthrates.

Second,thepaperreliesonannualinternationalinput-outputlinkagesfromtheOECD’sICIOdata.Thedataprovidesdetailedinput-outputlinkagesfor45sectorsacross76individualcountriesfrom1995to2020.Theremainderofcountriesissummarizedasthe”restoftheworld”sotheinput-outputtablescovertheentireglobaleconomy.Usinginternationalinput-outputtablesiscriticalforouranalysisofenergypricepassthroughsinceasignificantshareofenergyinputsareimportedformanycountries.Thus,nationalinput-outputtablesmayunderstatesectoralenergydependence.

Wedenotetheinternationalinput-outputmatrixby?,whereelementsareindexedby?i,j

andindicatetheamountofinputsectorjsourcesfromsectori.LetIdenotethetotalnumberofsectorsintheinternationalinput-outputtableandNthenumberofcountries.Then,?hassizeINxIN.Forthecalculations,wewillfocusonthe”technicalmatrix”(seeBartelmeandGorodnichenko(2015)),??,whichweobtainbydividingeachcolumnof?bysectoralgrossoutputYi1.

Weconstructtwomeasuresofenergydependence.Directenergydependenceisthetotalinputshareofenergyinsectoralgrossoutput.Totalenergydependenceisthesumofdirectenergydependenceandindirectenergydependence,measuredbytheLeontief-inverse

1SectoralgrossoutputYicanbecomputedasthesumofallintermediatesthatsectoriusesplussectoralvalue-

addedplustaxeslesssubsidiesfromtheICIOtables.Formally??=(Y1?1,,Y?1,...,Y?1)′?.whereY?1is

i

acolumnvectorwitheachentryequaltoY?1

i I i

weightedenergydependenceofsuppliers.Thiscapturesallindirectinput-outputlinkagesacrosstheproductionnetwork.

LeteidenoteaINx1vectorofzeroswithaoneforsectoriamongtheINsector-country

pairsandleteenergydenoteaINx1vectorofzeroswithonesforallsector-countrypairsthatincludetheenergysector.

Directandtotalsectoralenergydependenceγdirectandγtotalarethencomputedas:

i i

γ

directi

γ

totali

=e′energy

=e′energy

??ei (1)

(I???)?1ei (2)

Inthepaper,weusetwodefinitionsfortheenergysector:Anarrowdefinitionthatonlycapturescokeandrefinedpetroleumproducts(ICIOsectorC19)andabroaderdefinitionthatalsoincludesutilities(ICIOsectorD)2.Thesectoralenergydependencemeasuresareaggregatedfromthe45OECDICIOsectorsthatfollowtheNACEclassificationtothe11sectorsforwhichwehavesectoralpricedatausingtheaverageacrosssectorsinthesectoralmapping.Finally,weimputemissingsectoralenergydependenceinrecentyearswiththemostrecentavailablevalue.

Overall,thedifferentdefinitionsofsectoralenergydependenceyieldhighlycorrelatedmeasuresatthecountry-sectorlevel.Figure1showsthatthecorrelationsare.8forthenarrowenergydefinition(Panela)and.83forthebroadenergydefinition(Panelb)in2019.Moreover,asshowninAppendixFigureB.1,thesecorrelationsremainveryhighwhenincludingallyearswithavailabledatafrom1995-2020andresidualizingsectoralenergydependenceonacountryandatimefixedeffect.Thesemeasuresalsocorrelateintuitivelyacrosssectors.Forexample,for”manufacturing,utilitiesandwatersupply”,theaveragetotalenergydependenceis.34(.05usingthenarrowdefinition),whileforfinanceandinsurance,theaveragetotalenergydependenceis.03(.01usingthenarrowdefinition).

NarrowEnergyDefinition (b)BroadEnergyDefinition

Panelsshow2019correlationofsectoralenergydependencemeasurescomputedfromOECDICIOdatafordirectandtotalenergydependence.EnergysectorisdefinedasICIOsectorC19(Panela)andasICIOsectorsC19andD(Panelb).

Figure1:Correlationofsectoraldirectandtotalenergydependencein2019

2Technically,sectorDincludes”electricity,gas,steam,andairconditioningsupply.”

Sincethedifferentmeasuresarehighlycorrelated,wewillprimarilyrelyontotalenergydependenceunderthebroaddefinitionoftheenergysector,unlessotherwisenoted.

Finally,tomeasuresectoralpriceflexibilityweusedatafromRubbo(2023).Buildingonfirm-levelBLSdatathatfeedsintotheUSPPI,sheconstructssectoralpriceadjustmentprobabilitiesδi.Fortheremainder,weassumethatthesectoralpricestickinessforUSsectorscapturesthesectoralpricestickinessofthesamesectorsinothercountries.

Thefinalsampleisanunbalancedpanelof33countrieswithcountry-levelandsectoralpricedataaswellassectoralenergydependencedata.Thepanelincludes25advancedeconomiesand8emergingmarkets(Brazil,Bulgaria,Chile,Colombia,CostaRica,Hungary,Poland,Romania)withdatastartingin1981.Formostregressions,weusedatastartingin2010tofocusontherecenttimeperiod.Bothfortheaggregateandforthesectoralregressions,wewinsorizeoutcomesatthe2and98percentileperiod-by-periodtomitigatetheimpactoflargeoutliers.

Table1providesanoverviewofthesectoraldataforthesamplesince2010.Thereisrichsectoraldispersioninsectoralinflationratesbothwhenusingmorewidelyavailablesectoralvalue-addeddeflatorsandforsectoralPPIs,whichareonlyavailableforasubsetofsectorsandforEuropeaneconomies.

N

Mean

Std

GrossValueAdded(inmillionUSD)

19,790

17247.77

34569.61

SectoralValue-AddedDeflator(yoy)

20,468

3.72

14.60

SectoralPPIInflation(yoy)

8,533

3.27

13.22

DirectEnergyDependence

21,830

.0346

.0532

IndirectEnergyDependence

21,830

.0927

.0971

SectoralPriceFlexibility

21,830

.2566

.1492

Tablesummarizessectoraldataforsamplefrom2010-2024.Sectoralgross-valueaddedisnominal(convertedtoUSD).SectoralvalueaddeddeflatorsandPPIinflationratesarereportedasyearlyinflationratesinpercent.EnergydependenceiscomputedfromOECD-ICIOdata.SectoralpriceflexibilityisbasedondatafromRubbo(2023).RemainingdataisfromEurostatandOECD.

Table1:SectoralSummaryStatistics

DescriptiveStatisticsandStylizedFactsofthe2021-2023InflationEpisode

Thissectionbrieflydescribesthecontextofthe2021-2023inflationaryepisode,andshowsstylizedfactsonthebehaviorofenergyinputpricesandtherelationshipbetweensectoralenergydependenceandsectoralinflation.

Macro-levelDevelopments

During2021and2022,theworldwitnessedalargeenergyshockacrosscountriesandacrossenergysources.Globalenergypricesdoubledrelativeto2019(Figure2PanelB),with

amedianpriceincreaseofmorethan50percent(Figure2PanelA).

Energyandoilprices (b)Pricesofenergycommodities

Panela)showsquarterlyevolutionofglobaloilprices(inUSD)andglobalenergypricesindexedto100in1980Q1.Panelb)plotsevoluationofquarterlyenergypricesacrossdifferentenergysourcesusingdatafromtheIMFPrimaryCommoditiesPricesDatabase.Dataarereportedasindicesnormalizedto100inJanuary2020forPanelb).Gas,oil,andcoalpricescaptureglobalaveragesofmajorblends.

Figure2:Evolutionofglobalenergyprices

Theselargeenergyshockswereunprecedentedbyglobalhistoricalstandards.Figure33showsthatthedistributionofcross-countryquarterlyenergypriceinflationdisplayedmuchthickertailsandamuchlowerkurtosisthanduringpreviousdecades.Thiswastoalargedegreedrivenbyglobalfactorsbothontheupsideandthedownside.Acrosscountries,energypriceinflationsurgedin2021and2022,drivingtherighttailoftheenergypricedistributionin2020-2023(inyellow).Conversely,thewidespreaddeclineininflationin2023contributedtotheunusuallythickleft-tail.

Thefigurereportsthedistributionofquarterlyenergyinflationusingcountry-leveldatasince1992.Country-levelenergyinflationismeasuredusingHaver’squarterlyseasonallyadjustedHICPenergyinflationindex.Quarterlypricechangesarereportedinannualizedrates.

Figure3:DistributionofEnergyPriceChanges

Acrossenergysources,the2020-2023pricemovementswereparticularlylargeforgas

3Thisandthefollowingchartusedatasince1992,whichistheearliestyearwithavailablegaspricedata.

pricesinhistoricalcomparison.Incontrast,thedistributionofoilpricechangeswasbroadlyinlinewithpreviousepisodes,asshowninFigure4.Inparticular,the2020-2023distributionofquarterlyoilpricechangeswassomewhatflatterbutoverallbroadlycomparabletothepreviousthreedecades.While2020and2021witnessedlargeoilpriceupswings,comparablelargequarterlyoilpricessurgesofmorethan100percentinannualizedrateshadoccurredduringeachofthepriorthreedecades.Incontrast,theextremelylowkurtosisofthegaspricedistributionanditsthicktailwereunprecedented.Quarterlygaspricechangesinexcessof200percent(inannualizedrates)asseenforexamplein2022afterRussia’sinvasionofUkraine(Albrizioetal.(2023))hadnotoccurredatleastsincetheearly1990s.Thesegaspricesurgesof2022cameafteraperiodofhistoricallylowgaspriceinflationfrom2010-2019.

OilPrices (b)GasPrices

Figurereportsdistributionofquarterlychangesofglobaloilandgaspricesgoingbackto1992,thefirstyearwithavailablegaspricedata.Quarterlyinflationratesarereportedatannualizedrates.

Figure4:Distributionofquarterlyoilandgaspricechanges

SectoralDevelopments

Themacroleveldevelopmentshadheterogeneoussectoraleffectsdependingonsectoralenergydependenceandpriceflexibility.SectorswithhighersectoralenergydependencewitnessedasurgeinsectoralinflationthatbeganbeforeRussia’sinvasionofUkrainewhileinflationspreadonlygraduallytolessenergy-intensivesectors.Figure5showsthispattern,usingsectoralmeasuresofenergydependencethatareconstructedcountry-by-countryeitherusingtheinputshareofenergy(”directenergydependence”inPanelA)orusingtheinput-outputlinkagesweightedenergyshare(”totalenergydependence”inPanelB),asoutlinedinSection

Acrosscountries,energy-dependentsectorstypicallyincludeagriculture,manufacturing,andconstructionwhilelessenergy-dependentsectorsincludeseveralservicessectors.

Inflationinenergy-dependentsectorsstartedsurgingoverthecourseof2021,mirroringtheevolutionofrawenergyprices(Figure2),andacceleratedafterRussia’sinvasionofUkraine.Inflationinenergy-dependentsectorssubsequentlypeakedtowardslate2022beforedecliningrapidly.Incontrast,inflationinless-energydependentsectorswasaffectedmuchmoregradu