The Energy Origins of the Global Inflation Surge

IMF Working Papers, May 9, 2025

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Title: The Energy Origins of the Global Inflation Surge
Authors: Jorge A Alvarez, Thomas Kroen
Date: May 9, 2025
Paper type: IMF Working Papers
Core question: Relationship between energy prices and inflation dynamics during the global inflation surge associated with the COVID-19 pandemic.
Approach: Sector-level dataset covering over 30 countries and a local projections empirical strategy.
Central claim: Energy price shocks of 2021–2022 were remarkable, but the degree of inflation passthrough of energy shocks appears to be relatively stable over time.

Coverage: Comprehensive sector-level dataset covering over 30 countries.
Methodology: Local projections empirical strategy extending prior single-country and aggregate-inflation analyses.
Emphasis: Sectoral channels, structural characteristics, price-setting mechanisms, and intersectoral connectivity.

Energy shock magnitude:
- The energy shocks of 2021–2022 were characterized as remarkable.
Passthrough stability:
- The degree of inflation passthrough of energy shocks appears to be relatively stable over time.
Sectoral transmission:
- Energy price shocks significantly influence inflation through stable sectoral channels.
Structural determinants of passthrough:
- Energy dependence of sectors is critical in the passthrough mechanism.
- Price flexibility (and conversely, price rigidities) plays a critical role in transmission.
Data priorities:
- Detailed data on price-setting mechanisms and intersectoral connectivity are important to understand the energy-inflation passthrough.

Analytical perspective:
- A sectoral perspective is necessary for understanding inflationary pressures stemming from energy price shocks.
Policy focus:
- Policymakers should account for structural sectoral characteristics—such as energy dependence and price flexibility—when assessing inflation risks from energy price movements.
Research and data:
- Improving and leveraging detailed sectoral data on price-setting and production networks should be a policy and research priority to better diagnose and respond to energy-driven inflationary episodes.

Subjects: Climate change, Climate policy, Energy prices, Energy pricing, Environment, Expenditure, Inflation, Natural disasters, Oil prices, Prices, Public debt, Revenue administration
Keywords: Climate change, Climate policy, energy inflation, Energy Prices, Energy pricing, energy-inflation Passthrough, enterprise risk, fund disbursement, Global, Inflation, Inflation Passthrough, inflation surge, Local Projections., monetary policy committee, Natural disasters, Oil prices, Pakistan CCDR, Policy discussion, policy priority, policy rate remains, price flexibility, Price Rigidities, Production Networks

Source: The Energy Origins of the Global Inflation Surge, Jorge A Alvarez and Thomas Kroen, IMF Working Papers 2025, 091, May 9, 2025.