Gas price shocks and euro area inflation

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https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2905~6b246d6bf4.en.pdf

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火曜日, 2月 13, 2024

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概要

Key Points:

We document
how gas price fluctuations have a heterogeneous pass-through to euro area prices
depending on the underlying shock driving them.
How do gas price shocks feed through to euro area
inflation, and is the pass-through shock-dependent?
We analyse the importance of gas price shocks
for euro area inflation in two steps.
We identify three structural shocks driving European gas prices,
inspired by the literature on oil but tailored to the European gas market: (i) a gas supply
shock, which reduces the supply of natural gas to the European market, increases the
gas price and lowers gas inventories; (ii) an economic activity shock, which lifts demand
for gas due to higher economic production, and finally (iii) a shock to gas inventories,
when gas prices are driven by precautionary demand by gas companies.
First, all three identified shocks are
important drivers of gas price dynamics, but they differ in how persistently they push
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up gas prices.
The effect on euro area HICP of a shock to gas supply is more
persistent and somewhat higher than when gas prices are driven by economic activity
shocks.
A final key finding is that the pass-through of gas market shocks to euro area inflation
appears non-linear.
The unprecedented volatility of gas prices
contributed to the inflation problem in the euro area, with the gas price shocks feeding
through producer prices, wages and persistently lifting core inflation.
More expensive
energy contributed substantially to the rise in inflation in Europe during 2022.2
Figure 1: Gas price and euro area Harmonized Index of Consumer Prices.
How do gas price shocks feed through to euro area
inflation, and is the pass-through shock-dependent?
For instance, about 75% of gas imports to the euro area arrives
through pipelines, making gas imports difficult to substitute and gas markets subject to
3
See for example the evidence by Rubaszek and Uddin (2020) for the US economy.
We analyse the importance of gas price shocks for
euro area inflation in two steps.
We identify three structural shocks driving European gas prices,
inspired by the literature on oil but tailored to the European gas market: (i) a gas supply
shock, which reduces the supply of natural gas to the European market, increases the
gas price and lowers gas inventories; (ii) an economic activity shock, which lifts demand
for gas due to higher economic production, and finally (iii) a shock to gas inventories,
when gas prices are driven by precautionary demand by gas companies.
First, all three identified shocks are
important drivers of gas price dynamics, but they differ in how persistently they push
up gas prices.
But when gas prices are driven by
inventory demand shocks, the price effect typically dies out within one quarter.
A final key finding is that the pass-through of gas market shocks to euro area inflation appears non-linear.
The unprecedented volatility of gas prices
contributed to the inflation problem in the euro area, with the gas price shocks feeding
through producer prices, wages and persistently lifting core inflation.
(2022) and Alessandri and Gazzani (2023) identify gas supply shocks using VAR models,
finding that gas price shocks lead to persistent increases in headline inflation.14 Ba?bura
et al.
(2023) find positive effects of gas price shocks on core inflation in a BVAR for
the euro area that includes one type of gas shock along a longer list of macroeconomic
shocks.
3.1
Data

For the gas market BVAR model, we use gas quantities, gas prices, gas inventories and
euro area industrial production, as displayed in Figure 2.
(2015) to optimize
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the posterior distribution.16 The vector Y includes the European gas quantity proxy, gas
inventories, the European gas price benchmark and euro area industrial production.
As demand for gas increases, the gas price also rises
while inventories fall as agents use gas in storage to partially satisfy higher demand.
Shocks to gas
quantities driven by gas supply or inventory shocks tend to revert to pre-shock levels after
around five to seven months, while economic activity shocks lead to a more long-lived
increase in gas demand.19 Dynamics in gas inventories are more similar across shocks.
3.4
Historical events in the European gas market

Before analysing the transmission of the different types of gas shocks to euro area prices,
we show how the model interprets the unprecedented gas price rise in 2022 in terms of
driving factors, and compare it with previous historical episodes of heightened gas price
volatility as a way of validating the model.
Inventory shocks play a
slightly smaller role, accounting for 17% of gas quantity and 23% of gas price fluctuations
while the residual component (i.e.
4
Pass-through of gas price shocks to consumer prices

The pass-through of gas price shocks to inflation is likely to be multi-faceted.
We first consider four outcome variables y: the European gas price, euro area HICP,
core HICP and energy HICP.
Third, depending on the driving factor, gas price increases can pass through to core
inflation in the euro area.
The results underline that gas price shocks can have important implications for inflation in the euro area ? depending on the driving factor of higher gas prices.
Casoli, C., Manera, M., and Valenti, D. ?Energy shocks in the euro area: disentangling
the pass-through from oil and gas prices to inflation?.