DP18907 Estimating the rise in expected inflation from higher energy prices
When the price of electricity increases by 1%, households’ expected inflation increases by 1.2 to 1.5 basis points. But, if those expectations have become unanchored, then the effect is higher by 0.2 to 1.5 bps. This paper arrives at these estimates by exploit- ing variation both in the time series, and especially in the cross section, from newly- available public data on expected inflation by Euro area households across region, gender, education, and income, and on the cost of energy across region and source. New measures of supply shocks to energy prices derived from the structure of the electricity market raise expected inflation gradually for 8 to 12 months. The rise in energy prices in 2021-23 accounts for only a small share of the rise in expected inflation
