This paper focuses on the developments of energy prices since mid-2021 and assesses their impact on headline inflation in the euro area and in its four largest countries. It considers both direct and indirect effects, i.e. transmission through the core and food components.
While the contribution of energy inflation to core and food inflation is generally low in normal times, the unparalleled energy price shock has generated a sizeable (positive) contribution to inflation. In the first nine months of 2022, energy inflation accounted on average for roughly 60 per cent of headline inflation in the euro area, either directly or indirectly. The same result holds qualitatively true for the four largest countries in the euro area, although with some quantitative differences.