Economic Buzz: Global producer prices have responded more rapidly to energy shock than consumer prices

Reserve Bank of Australia stated in its monetary policy today that higher energy prices have raised headline consumer and producer price inflation in most economies, although the effects have varied across countries, largely reflecting differences in policy responses (such as price controls, subsidies and tax cuts) and the domestic energy mix. Headline producer prices have generally responded more rapidly and by significantly more than consumer prices so far. While consumer and producer price inflation moderated in June in some economies – such as the United States and the United Kingdom – as fuel prices eased, inflation is likely to rise again given recent movements in oil prices.

Strong demand growth, particularly for AI-related goods, has also raised producer price inflation in some economies, although effects on consumer prices have been more limited to date. For some east Asian economies like South Korea, producer price inflation began to pick up before the Middle East conflict as bottlenecks emerged in AI-related supply chains. In China, producer price inflation remains around multi-year highs following the sharp increase in commodity prices, although the impact of higher energy prices has already begun to dissipate, with producer price inflation broadly stable in June.

However, it noted that core consumer price inflation has been broadly stable since the start of the conflict in many economies. It remains above levels consistent with central bank targets in several advanced economies though.

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