The effect of rising energy prices amid geopolitical developments and supply disruptions

Abstract

Much research has documented how changes in supply and demand cause commodity price fluctuations, with subsequent effects on the global economy. This paper puts the recent energy price surge in perspective amid geopolitical developments and supply disruptions, and analyses the effects on global activity and inflation, focusing in particular on Europe. It highlights the importance of inflation expectations for transmitting energy shocks to inflation, analyses to what extent such energy shocks can have a significant long-lasting effect on actual inflation, and discusses the new monetary policy challenges of stabilizing inflation in the wake of the current volatile situation.