ECB Chief Economist Philip Lane is sounding the alarm on something that sounds obvious but is surprisingly tricky to measure: when energy prices spike, everything else gets more expensive too. Not just your heating bill. Your groceries, your clothes, your haircut.
In a speech delivered on May 13, Lane laid out the mechanics of how energy supply shocks create cascading price pressures across food, non-energy goods, and services. The core finding is striking. A global energy price shock, like one triggered by geopolitical tensions around the Strait of Hormuz, could push non-energy inflation up by approximately 1.5 percentage points cumulatively over three years.
The math behind the ripple effect
Lane’s analysis distinguishes between two scenarios. A global shock, the kind that disrupts major energy supply routes and sends prices surging worldwide, carries the heaviest burden. That 1.5 percentage point cumulative increase in non-energy inflation over three years reflects how deeply energy costs are embedded in modern supply chains.
A regional shock, by contrast, would add only about 0.4 percentage points over the same period. The difference comes down to how widely cost increases propagate through interconnected supply networks.
