The surge in energy prices since March 2026 has revived a familiar question among central bankers: how much of an energy price spike ultimately passes through to consumer prices? Until about a decade ago, the energy shocks relevant for the euro area were essentially oil shocks, and their inflationary effects, though sharp, tended to fade relatively quickly. The 2021-22 energy crisis shattered that premise: gas and electricity emerged as autonomous and powerful drivers of inflation, with effects that proved more persistent and more pervasive than those of oil. Earlier work (Corsello and Tagliabracci 2023, Pallara et al. 2023) showed that, once the 2021–22 episode is taken into account, energy shocks generate significant indirect effects on euro-area core inflation, and with much greater persistence than in the US, reflecting the euro area’s greater exposure to gas. Alessandri and Gazzani (2023) show why this matters: gas supply shocks propagate more strongly than oil shocks, a difference rooted in the distinct structure of the two markets. Understanding the anatomy of these transmission mechanisms is essential for interpreting the current conjuncture and its policy implications.

The natural benchmark for interpreting the March 2026 shock is the 2021–22 energy crisis, but relevant differences are worth stressing. First, the size of the shock has been smaller so far. Brent rose markedly but remained below previous peaks; TTF surged substantially but stayed far below the extraordinary levels reached during 2021–22, when European gas prices climbed into unprecedented territory for more than a year. A further difference is the macroeconomic environment in which the shock occurred. The 2026 episode has a clearer supply-side nature, as disruptions to energy commodity markets hit the euro area at a time of weak growth. This contrasts with 2021-22, when the energy shocks arrived during a strong post-pandemic rebound, triggering an extensive debate on the relative importance of supply and demand factors; see, among others, Ascari et al. (2024), Neri (2024), Forbes et al. (2024), and Giannone and Primiceri (2024). 

Why gas shocks are different from oil shocks

The transmission of oil supply shocks is different from that of gas supply shocks. Using euro area Harmonised Index of Consumer Prices (HICP) data from 1996 to 2025 and externally identified shocks, our empirical analysis shows that oil and gas supply shocks are fundamentally dissimilar in how they pass through to consumer prices (Figure 1). The difference lies not only in the first and direct stage of transmission, from commodity prices to effective energy prices, but also in the second stage, the indirect propagation to non-energy items. 

Figure 1 Pass-through of oil and gas shocks to Harmonised Index of Consumer Prices (HICP) special aggregates

Sources: authors’ calculations based on ECB and Eurostat data. Oil and gas supply shocks are identified using the instruments proposed by Mori and Peersman (2024) and Alessandri and Gazzani (2025). 
Notes: The shocks are normalised to have an effect of 1% on energy inflation on impact, and shaded areas denote 68% confidence intervals.

Oil supply shocks tend to produce effects that are immediate but relatively more short-lived. The direct channel is fast: retail fuel prices adjust within weeks. The indirect channel, i.e. the spillover to non-energy prices via production costs, is comparatively limited with respect to gas. This reflects the structure of production costs: outside the transportation sector, oil is not a major direct input for most manufacturing or service sectors. Its inflationary bite tends to be concentrated in a sizable, immediate impact on fuels, but dissipates once the initial shock passes. In March and April 2026, euro area inflation rose by around one percentage point due to the strong increase in fuel prices, representing the most immediate effect of Middle East tensions.

Gas supply shocks operate through slower direct channels but have a broader and more persistent propagation. Their direct effects on consumer energy bills emerge more gradually, reflecting regulated tariffs, long-term contracts, staggered retail repricing, and differences in national energy-market design. The pass-through from wholesale gas to electricity prices is also uneven, depending on the role of gas-fired generation in setting the marginal electricity price in each country. At the same time, gas disruptions tend to be more persistent than oil shocks, owing to the more rigid physical structure of the gas market, including pipelines, storage constraints and liquefied natural gas (LNG) infrastructure. When gas market disruptions feed through, their inflationary effects are substantially more persistent. More importantly, the spillovers to non-energy prices are far broader than for oil, since gas and electricity are key energy inputs for a wide range of sectors. A gas shock generates significantly larger and more durable indirect effects than an equivalent oil shock.

Heterogeneity of indirect effects across sectors and items

The transmission of energy shocks is highly uneven across the non-energy components of the consumption basket (Figure 2). Food prices respond early and broadly to both oil and gas shocks, consistent with the findings of Corsello and Tagliabracci (2023), but are particularly sensitive to gas. This reflects the key role of gas and electricity as inputs in the production of processed food items, and also their role in producing agricultural inputs (such as fertilizers) that are crucial for the supply chain of unprocessed food items. Non-energy industrial goods (NEIGs) show a more homogeneous pattern: both types of shocks affect them with broadly similar reach, though gas tends to generate larger effects at longer horizons, consistent with its more pervasive role as a production input in manufacturing. 

Figure 2 The heterogeneous pass-through of gas shocks 

a) Food  

b) Non-energy industrial goods (NEIGs)

c) Services

Sources: Authors’ calculations based on ECB and Eurostat data. 
Notes: The shocks are normalised to have an effect of 1% on energy inflation on impact. The price categories on the y-axis are sorted by their weight in the Harmonised Index of Consumer Prices (HICP) basket, from highest to lowest.

Services present the most heterogeneous picture. Leisure-related items — accommodation, restaurants, package holidays, transport services — are notably energy-sensitive, with some more directly exposed to oil through transportation costs. Yet even within these categories, gas shocks tend to generate more persistent and widespread effects. The heterogeneous response of services to energy shocks also reflects the fact that many items respond only after considerable delays, owing to the lower frequency of price adjustment in these sectors and the more indirect routes through which energy costs affect labour costs and margins.

These patterns mirror what input-output data reveal about sectoral production structures. Exposure to energy inputs is relatively similar across manufacturing sectors, but much more dispersed across services. Oil enters production mainly through transportation, whereas gas and electricity are embedded more widely across economic activities. 

State-dependence: The inflation environment matters

Perhaps the most policy-relevant result is that the same energy shock can have different consequences depending on the inflationary environment in which it occurs. In particular, the pass-through to consumer prices may be much stronger when the shock hits an economy already characterised by elevated cost pressures and broad inflationary momentum, while remaining more contained when inflation is subdued.

In a low- or normal-inflation regime, the indirect effects of both oil and gas shocks are limited, with the inflation response operating mainly through direct channels (Figure 3). In a regime characterised by elevated energy or core inflation in the preceding months, the picture changes markedly, especially for gas shocks. Indirect effects become sizable and persistent, spreading to food and core components and prolonging inflation through non-energy components. Second-round effects, through changes in price-setting behaviour and wage dynamics, may also become more material in a high-inflation environment.

Figure 3 Summary of indirect effects of energy shocks on inflation

Sources: Authors’ calculations based on ECB and Eurostat data. Notes: Bars denote 68% confidence intervals.

The mechanism is intuitive: when energy prices remain persistently high in an already high-inflation environment, firms are more likely to pass cost pressures through to prices rather than absorb them through margins. Price adjustment becomes more frequent, amplifying the pass-through across the non-energy consumption basket. The findings are consistent with Neri (2026), who documents a state-dependent pass-through of energy shocks, driven especially by gas shocks. They also align with euro-area micro-price evidence showing that the frequency of price changes rose sharply in 2022 (Gautier et al. 2026), a pattern that can make the Phillips curve temporarily steeper in such episodes (Neri et al. 2026).

Implications for 2026

Taken together, the evidence suggests that, so far, the 2026 energy shock is likely to have a more contained inflationary impact than the 2021–22 episode, although uncertainty remains elevated.

Oil prices have risen sharply, but are still below historical highs, and their indirect effects may remain limited and temporary if shocks do not compound into a broader and more persistent energy cost surge. Moreover, gas prices have increased to a much lesser extent compared to 2021–22, and the corresponding effects on household electricity and gas bills appear more limited, in contrast to the rapid and strong response of fuels. While some pass-through to food prices is expected, given the direct exposure of food sectors to energy inputs, broader spillovers to core inflation are unlikely to develop quickly. This is because firms in manufacturing and services typically adjust prices only when energy costs remain elevated for a prolonged period.

From a monetary policy standpoint, the key question is whether energy prices will stay high for long enough to trigger material indirect and second-round effects via wages and expectations. Euro area core inflation is no longer as elevated as it was from 2022 to 2024, which, combined with a short-lived energy shock, should reduce the risk of state-dependent amplification. However, continuous monitoring of pass-through to non-energy prices, including energy-sensitive items, and of forward-looking indicators of price pressures, such as wages and expectations, will be essential for an informed assessment of the medium-term inflation outlook.

References

Alessandri, P and A Gazzani (2023), “The impact of gas supply shocks in Europe”, VoxEU.org, 25 July.

Alessandri, P and A Gazzani (2025), “Natural gas and the macroeconomy: Not all energy shocks are alike”, Journal of Monetary Economics 151, 103749.

Ascari, G, D Bonam and A Smadu (2024), “Global supply chain pressures, inflation, and implications for monetary policy”, VoxEU.org, 6 March.

Corsello, F and S Neri (2025), “Catch me if you can: fast-movers and late-comers in euro area inflation”, SUERF Policy Brief, No 1070.

Corsello, F and A Tagliabracci (2023), “Assessing the pass-through of energy prices to inflation in the euro area”, Economia Italiana, 2023/03.

Forbes, K, J Ha and M A Kose (2024), “Demand versus supply: Drivers of the post-pandemic inflation and interest rates”, VoxEU.org, 9 August.

Gautier, E, C Conflitti, D Enderle, L Fadejeva, A Grimaud, E Gutiérrez, V Jouvanceau, J Menz, A Paulus, P Petroulas, P Roldan-Blanco and E Wieland (2026), “Consumer Price Stickiness in the Euro Area During an Inflation Surge”, CEPR Discussion Paper No 21149.

Giannone, D and G Primiceri (2024), “The drivers of post-pandemic inflation”, VoxEU.org, 19 September.

Mori, L and G Peersman (2024), “Estimating the macroeconomic effects of oil supply news”, CESifo Working Paper No 11532.

Neri, S (2024), “‘There has been an awakening’. The rise and fall of inflation in the euro area”, SUERF Policy Brief No 862, 3 May.

Neri, S, C Conflitti and A Lin (2026), “The awakening of inflation and the return of the Phillips curve in the euro area”, Banca d’Italia Temi di Discussione n.1525.

Neri, S (2026), “Energy prices, inflation, and the ECB’s monetary policy during the 2021-22 energy crisis”, Working Paper.

Pallara, K, L Rossi, M Sfregola and F Venditti (2023), “The impact of energy shocks on core inflation in the US and the euro area”, VoxEU.org, 14 August.