The indirect inflation effects of higher energy prices

Beyond their direct effects on consumer prices of fuels and piped gas, higher crude oil and natural gas prices will prompt firms to pass on higher fuel costs to consumers, boosting the prices of non-fuel items of the CPI such as electricity and food. In our baseline scenario, we estimate that these indirect effects on inflation – which are separate from “second-round” effects via broader wage- and price-setting – could range from 0.7%-pt in the US to nearly 1.5%-pt in the euro-zone, with the UK and Japan in between.