Oil and gas shocks affect euro-area inflation differently

The study reveals that oil supply shocks have a short-lived inflationary impact, primarily through rapid transmission to HICP fuels.

For instance, a 1 percent increase in Brent prices typically raises euro area motor fuels inflation by about 0.3 percentage points within two months.

In contrast, gas supply shocks generate stronger and substantially more persistent effects, passing through more gradually to household energy bills.

A 1 percent increase in TTF prices translates to roughly a 0.1 percentage point rise in consumer gas and electricity prices over four months.

The March 2026 geopolitical tensions led to unusually large monthly increases in Brent (+45%) and TTF (+60%) prices.

However, these did not push energy prices back to the historical highs seen during the 2021-22 energy crisis.

The inflationary consequences of the 2026 shock are therefore likely to be more contained than the 2021-22 episode, given the comparatively moderate increase in gas prices, though uncertainty remains high.

Beyond direct effects, oil and gas shocks feed into inflation indirectly through production costs and input linkages.

The analysis, using granular euro area HICP data, highlights significant heterogeneity in this transmission.

The 2021-22 energy crisis showed food prices adjusting rapidly, while non-energy industrial goods inflation was already elevated due to post-pandemic supply bottlenecks.

Services components responded less and with a considerable delay.

Crucially, the prevailing inflation regime conditions these indirect effects: they are largely muted in low-inflation environments but become pronounced in high-inflation regimes, especially for gas shocks.

This state-dependent response is a key finding.