Surging oil prices this year have had a more modest impact on price rises than in the past, adding only about 0.2 of a percentage point to inflation, the European Central Bank said on Thursday.
The key question for monetary policy is whether trade unions will demand higher wages to compensate for dear oil, but this does not now appear likely, the ECB said in its July monthly bulletin.
In a section of the report analysing the link between oil prices and inflation, the ECB said it important to distinguish between direct and indirect prices rises linked to oil.
"The direct effect of the recent increase in oil prices has been to push up energy price inflation by roughly 1.6 percentage points and overall inflation by 0.2 percentage point since January 2004," the ECB said. "The effect appears, however, to be more muted than that of the much stronger oil price increase in 1999/2000," it added.
Crude oil prices, which hit a 21-year high at around $42.50 per barrel early last month, then retreated, but have moved up again in recent days to hold around $39.
As oil is priced in dollars, the euro's strength against the dollar has dampened the impact of energy price rises in the eurozone.
The ECB cited a rule of thumb that a 10 percent increase in the euro-denominated price of oil roughly translates into a 0.1 percentage point rise in consumer prices that quarter.
The rise in annual energy price inflation looks big mainly due to a statistical effect; rising oil prices this year are being compared with falling prices at the same time last year, the ECB added.
Higher oil prices can also have an indirect effect on inflation because energy is an important input to intermediate goods and services, but the effect usually appears with a lag.
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