This paper examines the impact of changes in the supply of natural gas on inflation and economic activity in the euro area using an econometric model that accounts for the potentially long and variable lags in the transmission of gas shocks to the real economy. Supply shocks are identified by analysing news around a series of large gas price fluctuations observed between 2010 and 2022.
The data show that the most severe negative shocks to European gas supplies have systematically occurred in connection with adverse natural events or political tensions linked to the conflicts between Russia and Ukraine, including the war that began in 2022. Like oil shocks, negative gas supply shocks cause a slowdown in economic activity and an increase in inflation. However, owing to the peculiar structure of the market, gas shocks have a more gradual impact, with a peak in inflation for non-energy goods following the shock by over two years.
