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The nonlinear impact of retail energy supply shocks on inflation and economic activity | CEPR

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A surge in energy prices in 2021, coupled with the effects of both reopening following the removal of COVID-related restrictions and of global supply bottlenecks, led to unprecedented increases in consumer price inflation in the euro area. This column uses nonlinear methods to show that the transmission of energy supply shocks to consumer prices is stronger and more persistent in high-inflation regimes. The authors also suggest that there is a high risk of a permanent drop in the production of the European energy-intensive sectors, such as chemicals and basic metals, if the energy crisis is not resolved. Senior Lead Economist, Business Cycle Analysis Division, DG Economics European Central Bank Postdoctoral fellow Bocconi University The fluctuations in consumer prices in 2022 and 2023 have been unprecedented since the creation of the Economic and Monetary Union (EMU). The Harmonized Index of Consumer Prices (HICP) in the euro area started to increase rather sharply since the end of sum

VoxEU Column Energy Inflation Productivity and Innovation The nonlinear impact of retail energy supply shocks on inflation and economic activity Roberto De Santis Tommaso Tornese / 19 Jan 2024 A surge in energy prices in 2021, coupled with the effects of both reopening following the removal of COVID-related restrictions and of global supply bottlenecks, led to unprecedented increases in consumer price inflation in the euro area. This column uses nonlinear methods to show that the transmission of energy supply shocks to consumer prices is stronger and more persistent in high-inflation regimes.

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