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Asymmetries in the transmission of energy price increases and decreases to underlying inflation in the euro area and Spain

Author

Listed:
  • Pablo Burriel Llombart

    (Banco de España)

  • Florens Odendahl

    (Banco de España)

  • Susana Párraga Rodríguez

    (Banco de España)

Abstract

Rationale Energy prices rose sharply in early 2022 and then began to decline towards the end of the year. Given this situation, it is worth analysing whether an energy price increase raises underlying inflation more than an energy price decrease reduces it. Takeaways •Over a one-year horizon, a large hike in energy prices increases underlying inflation by around twice as much as an equivalent decrease reduces it. •The asymmetry in the response of underlying inflation to changes in energy prices is greater in components that use more energy in their production process. •Although asymmetry can be identified by analysing historical relationships, there is considerable uncertainty about the validity of such patterns in the current setting, which can be characterised by unprecedentedly large shocks that have driven both energy prices and underlying inflation.

Suggested Citation

  • Pablo Burriel Llombart & Florens Odendahl & Susana Párraga Rodríguez, 2024. "Asymmetries in the transmission of energy price increases and decreases to underlying inflation in the euro area and Spain," Economic Bulletin, Banco de España, issue 2024/Q1.
    • Handle: RePEc:bde:journl:y:2024:i:01:n:06
    DOI: https://doi.org/10.53479/36173
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    References listed on IDEAS

    as
    1. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
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    More about this item

    Keywords

    Asymmetry; energy prices; inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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