Energy price boom’s inflationary impact from oil is not that clear cut
London — Energy prices are booming, but the inflationary impact from high oil is not so clear-cut. Once exchange rate differentials are taken into account, the resulting price pressures are less severe than they look at first glance. This is important for the European Central Bank (ECB), as it allows it to tighten policy far more gradually than might otherwise be the case. Brent crude oil futures topped $70 a barrel last week for the first time in more than three years, meaning the price has more than doubled from the multi-year low of $27.10 in January 2016. More importantly for central bankers calibrating policy based on the inflation outlook for the year ahead, oil is up more nearly 30% over the past 12 months. An International Monetary Fund (IMF) working paper published in September last year found that a 10% rise in oil prices typically increases domestic inflation by 0.4 percentage points in the short term, or the year of the price spike, with the effect vanishing after two ye...
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