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inflation

Energy costs feed into consumer inflation through several channels beyond the retail petrol price: transport costs for goods, input costs for manufacturers reliant on natural gas as feedstock or fuel, and secondary effects on food prices where energy-intensive fertiliser production and transport are involved. Central banks generally attempt to look through short-lived energy price spikes when setting policy, on the basis that they represent a one-off level shift rather than a sustained inflationary trend. That distinction becomes harder to maintain the longer a disruption persists, and central banks have historically been forced to react more forcefully when energy shocks feed into wage-setting expectations rather than remaining a contained, temporary effect.

• Roughly a fifth of global oil consumption transits Hormuz, giving even modest percentage disruptions an outsized effect on global balances.
• LNG buyers, particularly in Japan, South Korea and China, have limited substitution options on short notice given how contracted global LNG supply already is.
• Freight and insurance cost increases are passed through to landed fuel costs even when the underlying commodity price has not moved as much.
• Strategic petroleum reserves in major consuming countries provide a buffer of weeks, not months, against a sustained disruption.