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Fuel price surges and rising inflation expectations in the Euro Area

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  • Morão, Hugo

Abstract

This paper investigates the dynamic relationship between fuel price fluctuations and inflation expectations in the Euro Area from 2005 to 2022, employing a Structural Vector Autoregression (SVAR) model to analyze the impact of these price changes on key macroeconomic variables. Focusing on the context of the Russian invasion of Ukraine, this research reveals that fuel price variations significantly influence both short-term and long-term inflation expectations, with the most pronounced effects observed during the initial month of the conflict. However, after March 2022, the impact of fuel price fluctuations on durable and non-durable goods prices diminishes in intensity. These fuel price changes cease to be the primary driver of inflation in the subsequent months, suggesting other factors gain prominence in influencing price levels across the Euro Area. The findings demonstrate that fuel price changes also have economic implications for Eurosystem financial dynamics.

Suggested Citation

  • Morão, Hugo, 2025. "Fuel price surges and rising inflation expectations in the Euro Area," International Economics, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:inteco:v:181:y:2025:i:c:s2110701724000994
    DOI: 10.1016/j.inteco.2024.100576
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    Keywords

    Fuel prices; Euro Area; Inflation; SVAR; Expectations; Energy crisis; Russia–Ukraine war;
    All these keywords.

    JEL classification:

    • 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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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