Energy is an input to nearly everything. When its price changes, the effect spreads through the economy in stages, reaching consumers directly and indirectly.
The direct effect
Households and businesses feel changes in fuel and electricity bills quickly.
The indirect effect
Transport, manufacturing and agriculture pass higher energy costs into the prices of goods over the following months.
Why it matters for policy
Central banks watch whether energy shocks feed into wages and broader inflation expectations.
Key takeaways
- The direct effect
- The indirect effect
- Why it matters for policy
