The Effect of Oil Price Fluctuations on Spanish Inflation

8 Pages Posted: 6 Oct 2017

Date Written: May 11, 2017

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

Alvarez, Luis J. and Sánchez-García, Isabel and Urtasun, Alberto, The Effect of Oil Price Fluctuations on Spanish Inflation (May 11, 2017). Banco de Espana Article 10717. Available at SSRN: https://ssrn.com/abstract=3048264

Luis J. Alvarez

Banco de España

Alcala 50
Madrid 28014
Spain

Isabel Sánchez-García

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Alberto Urtasun (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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