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The effect of oil price fluctuations on Spanish inflation

Author

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  • Luis Julián Álvarez
  • Isabel Sánchez
  • Alberto Urtasun

Abstract

This article analyses the impact of changes in oil prices on the consumer price index (CPI) in the Spanish economy from a historical perspective. The evidence provided reveals a substantial degree of pass-through of these changes to CPI components tied to heating and vehicle fuel (direct effect). However, the estimated effect of changes in crude prices on firms’ input costs (indirect effects) and on inflation or wage expectations (second-round effects) is, on average, moderate. Consequently, in the current situation, in the absence of fresh shocks in the expected path of oil prices, the rise in the CPI in early 2017 – linked to base effects prompted by the low price of this commodity for most of 2016 – can be expected to be essentially temporary and, therefore, consistent with a downward trajectory in inflation in the coming months.

Suggested Citation

  • Luis Julián Álvarez & Isabel Sánchez & Alberto Urtasun, 2017. "The effect of oil price fluctuations on Spanish inflation," Economic Bulletin, Banco de España, issue JUN.
    • Handle: RePEc:bde:journl:y:2017:i:6:d:aa:n:14
    Note: Analytical Articles
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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/2017/T2/files/beaa1702-art14e.pdf
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    Cited by:

    1. Tiwari, Aviral Kumar & Cunado, Juncal & Hatemi-J, Abdulnasser & Gupta, Rangan, 2019. "Oil price-inflation pass-through in the United States over 1871 to 2018: A wavelet coherency analysis," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 51-55.
    2. Cordelia Onyinyechi Omodero & Michael Chidiebere Ekwe & John Uzoma Ihendinihu, 2018. "Derivation Funds Management and Economic Development of Nigeria: Evidence From Niger Delta States of Nigeria," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(2), pages 165-171, April.

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