The Link Between Energy Prices And Inflation

Energy was a leading contributor to inflation across the globe in 2022.  Russia has been a major player in the global energy markets, controlling 26% of the crude oil global market share and a 12% share for natural gas. With tensions erupting between Russia and Ukraine, CPI figures spiked globally to record levels.


Russia's Main Exports (% of global market share)

Figure 1: Russia's Main Exports (% of global market share) based on Green Match


The increase in energy prices was a blessing to some, with the energy sector standing as the only gainer in the S&P500 during 2022. In that time, WTI crude reached price levels not seen in two decades.


Price chart for WTI Crude oil

Figure 2: Price chart for WTI Crude oil. Source: TradingEconomics


Still, the spike adversely impacted consumers across the globe. Europe’s economy was hit hard from the war in Ukraine as inflation reached levels not seen since the 1980s. Prior to the war, Europe was heavily reliant on Russia’s energy. Russian gas accounted for 155 bcm of the EU's total gas imports in 2021. That’s roughly 45% of all gas imports and almost 50% of the EU’s total coal imports. Moreover, 18 nuclear reactors in the EU are powered by Russian fuel: six in the Czech Republic, four in Hungary and Slovakia, and two each in Finland and Bulgaria.


However, last year these figures fell sharply across the EU as a step toward full independence from Russian energy. European countries opted for gas imports from other nations and increased their consumption of green alternatives. Fabio Panetta, Member of the Executive Board of the ECB, said at an event by the Centre for European Reform “The energy shock stemming from Russia’s aggression against Ukraine has prolonged and aggravated a sequence of unprecedented supply shocks".


The UK was also impacted with fuel and electricity prices soaring 129.4% and 66.7% respectively in the last year. Six out of 10 adults also consumed less energy in their homes, with the inability to afford the surge in prices, according to the Office for National Statistics.


Inflation rates in the UK


The other side of the world also felt the shockwaves. The annual inflation rate in Japan rose by 0.2% to a record 4.0% in December 2022, the most since January 1991 amid a rise in prices of imports and weakness of the local currency.  This level is expected to rise again to 4.1% in January.


Inflationary pressure in Japan came from all components, with energy being the major contributor; electricity (21.3% vs 20.1%), gas (23.3% vs 21.0%), and fuel, light, and water charges (15.2% vs 14.1%).


To control the pressure, countries adopted aggressive QT, and many are working on finding green alternatives to avoid high volatility in global energy prices.








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