The Bank for International Settlements published a working paper finding that news of large oil and gas discoveries raises core consumer prices before extraction begins, with inflationary effects concentrated in economies with inflexible exchange rates. Anticipated resource income stimulates domestic spending without immediately expanding supply. Under flexible exchange rates, currency appreciation offsets much of the resulting price pressure by lowering import prices. The study constructs a dataset of 1,309 large discoveries across 79 economies from 1980 to 2019, focusing on discoveries with production lags of at least five years to distinguish anticipation effects from actual increases in supply. A median discovery, valued at 5% of gross domestic product, raises the core consumer price index cumulatively by about 1.13% over the following decade. Roughly half of that increase, or 0.57%, occurs within four years, before extraction starts. Price increases are concentrated in nontradable goods and services, while tradable and producer prices show little response. Consumption, investment and output also expand ahead of extraction. Higher imports initially weaken the current account, which subsequently improves as new resource production supports exports. The real exchange rate appreciates persistently. A New Keynesian model of a small open economy explains the contrast between exchange rate regimes: constrained nominal appreciation leaves adjustment to higher domestic prices, while greater currency flexibility reduces imported input costs and dampens consumer inflation.

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