Energy shocks and inflation: challenges for monetary policy

Key takeaways 

• The recent energy shock ranks among the most significant since the 1990s.
• Structural factors and initial conditions influence how energy shocks propagate into inflation – directly and through second-round effects.
• The appropriate monetary policy reaction depends on the persistence of the inflationary pressures as well as the magnitude of the growth impact, and it differs across economies. Uncertainty about these effects further complicates the policy challenge.

The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.