The Federal Reserve Board has published a research note finding evidence that oil price increases have transmitted more strongly to core inflation since the pandemic, alongside greater inflation persistence. Across five major advanced economies, these changes could make oil shocks generate larger and more lasting inflation pressures if they continue, complicating monetary policy as economic activity weakens.
Using data through the second quarter of 2026, the analysis estimates that a rise of 10 percentage points in relative oil price inflation raises core inflation by 0.14 percentage point under the dynamics observed since the pandemic, compared with a statistically insignificant 0.01 percentage point previously. Estimated inflation persistence has roughly doubled. Conditional projections using the Brent futures curve from early August 2026 put average core inflation near 2.8% around mid-2027, about 0.6 percentage point above the path implied by dynamics before the pandemic, before declining toward 2.2% by the end of 2028.
Those projections assume stronger persistence and oil price transmission continue through 2028. They represent an upper bound rather than a central prediction and are not official forecasts. The short, unusual period since the pandemic limits the analysis’s ability to distinguish lasting structural changes from more frequent or persistent supply shocks and broader demand pressures. Second-round effects have not yet materialized, but structural model simulations indicate that stronger transmission combined with greater persistence could roughly double the output loss from an oil shock and require materially tighter monetary policy despite weakening activity.