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Oil Inflation Could Reduce Eurozone GDP by 1.5 Pct: Study

  • Photo taken on Jan. 1, 2022 shows the headquarters of the European Central Bank illuminated to celebrate the 20th anniversary of Euro banknotes and coins in Frankfurt, Germany.

    Photo taken on Jan. 1, 2022 shows the headquarters of the European Central Bank illuminated to celebrate the 20th anniversary of Euro banknotes and coins in Frankfurt, Germany. | Photo: Xinhua/Lu Yang

Published 28 June 2022
Opinion

An expected 30 percent inflation in the price of oil could reduce the gross domestic product (GDP) in the eurozone by 1.5 percent, according to a new study.

Presented on Tuesday at the European Central Bank (ECB) annual forum held in Sintra, Portugal, the study shows that European countries are among those most affected by soaring oil and gas prices. This is due to their dependency on these fuels for production and consumption.

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According to the study's author, economist Hilde C. Bjornland, the increase in energy prices is directly related to geopolitical tensions and disruptions to supply chains caused by the war in Ukraine.
   
The study shows that every 10 percent increase in oil prices can reduce eurozone GDP by 0.5 percent after two years. This means that projecting 30 percent oil inflation could reduce GDP in the eurozone by 1.5 percent.
   
"During periods of high oil price volatility, stabilizing inflation is difficult," she said.
   
The rise in other commodity prices, particularly foods, has already raised inflation expectations and "has the potential to have lasting effects on prices," she added.

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