Pass-through of the 2026 oil shock in the euro area, with the United States and Türkiye as comparators, August–September 2026
ABSTRACT
In August 2026 euro-area energy inflation reached 14.3% while services inflation stayed at 3.0%, and the European Central Bank (ECB) reported no material wage response to the energy shock. This analysis separates pass-through into direct, indirect and second-round layers and tests each against evidence available in September 2026: Eurostat’s final August HICP breakdown, the ECB’s 10 September decision and staff projections, US Bureau of Labor Statistics data and the Turkish central bank’s meeting summary. Through August the shock passed mainly through the energy item itself, with no sign of a wage–price spiral. Second-round risk sits in the lag structure of a projection that raises core inflation in 2027 and in oil assumptions fixed before the September attacks. In Türkiye, with unanchored expectations, the same risk is structurally higher.
1. The August decomposition: a shock still confined to energy
Euro-area annual inflation was 3.2% in August 2026. Energy inflation was 14.3%, services 3.0% and non-energy industrial goods 1.2% (Eurostat, 2026). On 10 September the ECB raised rates by 25 basis points and stated that the Middle East conflict continued to generate inflationary pressure (European Central Bank [ECB], 2026b). The question here is how far the 2026 oil shock had spread beyond the energy item by September 2026. The claim is that through August it remained largely a direct effect, that the wage channel shows no second-round effect, and that the risk lies in the ECB projection’s lag structure and in the date of its oil assumption. The euro area is the main case; the United States and Türkiye serve as comparators.
Eurostat’s final data attribute 1.43 percentage points of August inflation to services and 1.29 points to energy (Eurostat, 2026). Energy, a single item with limited basket weight, therefore accounts for about 40% of headline inflation (1.29/3.2, author’s calculation). Services and energy together contribute 2.72 points, leaving about 0.48 points for food and non-energy goods combined (author’s calculation).
Those remaining items are where indirect effects would show. Food, alcohol and tobacco inflation was 1.1% and non-energy industrial goods inflation 1.2% (Eurostat, 2026). Strong transmission of energy costs into food and goods prices would be inconsistent with both items staying near 1%. The August data thus indicate limited indirect pass-through so far.
US data show the same pattern more sharply. In August annual energy inflation was 16.3%, gasoline 27.4% and fuel oil 52.0%, while core CPI stayed at 2.4% (U.S. Bureau of Labor Statistics [BLS], 2026a). In both economies the direct effect is in double digits and core measures show no rise proportional to the energy shock.
2. Three layers of pass-through
The direct effect is the price increase of energy items in the consumer basket: motor fuel, heating and electricity. The indirect effect is cost transmission into transport, food and manufactured goods that use energy as an input. The second-round effect occurs when wage demands and firms’ pricing respond to the first two layers, so that inflation persists even after energy prices fall. The distinction decides the policy response: the first two layers shift the price level once, while the third changes the inflation rate itself.
Choi, Furceri, Loungani, Mishra and Poplawski-Ribeiro (2018) find, for a sample of advanced and developing economies, that oil price shocks have a temporary effect on inflation: a 10% rise in global oil inflation raises domestic inflation by about 0.4 percentage points on impact, and the effect fades within two years. They link the weakening of this effect over time largely to more credible monetary policy and lower dependence on energy imports. The finding implies that second-round effects depend more on how well expectations are anchored than on the size of the shock. Känzig (2021) shows that supply news shocks derived from OPEC announcements raise inflation expectations and prices before physical supply changes. Together the two studies define the variables to monitor for second-round risk: wages, long-term expectations and supply news.
3. Wages and expectations: no spiral yet
On wages the evidence is negative. According to the ECB, compensation per employee growth slowed to 3.3% in the second quarter from 3.5% in the first, and the bank stated: “Wages do not show a material response to the energy shock at this stage”; most measures of longer-term inflation expectations stand at about 2% (ECB, 2026a). Negotiated wage growth is expected to slow to 2.3% in 2026 from 3.2% in 2025 (La Française, 2026). Slowing wage growth while energy inflation runs at 14.3% indicates that no wage–price spiral has formed.
The Bank of England’s September vote shows that waiting for this evidence is itself contested. Of the three members voting for a hike, Megan Greene argued that waiting for conclusive proof of second-round effects would leave policy behind, and Catherine L. Mann cited the coincidence of the early-2027 inflation peak with spring wage negotiations as grounds for a pre-emptive move (Bank of England, 2026). The argument names a measurement problem: wage data are published with a lag, so second-round effects become observable only after they have formed.
4. Where the risk sits: the projection’s lag and its assumption date
ECB staff project HICP inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, with headline inflation peaking at 3.6% in the fourth quarter of 2026. Core HICP rises from 2.5% in 2026 to 2.6% in 2027 (ECB staff, 2026). A falling headline rate alongside rising core places the indirect and second-round effects in 2027. With energy inflation expected to turn negative during 2027, the rise in core rests on an assumption that pass-through operates with a lag of about a year behind energy prices.
The second source of risk is the assumptions’ date. The projections’ cut-off was 19 August 2026, with Brent assumed at $89.5 for 2026 and $78.0 for 2027 (ECB staff, 2026). These assumptions predate the September attacks on Saudi facilities and the pipeline outage. Because Känzig (2021) shows that such supply news can move expectations independently of physical supply loss, the 3.6% fourth-quarter peak is exposed to upside risk.
5. Alternative explanations considered
Low indirect pass-through in August could reflect timing rather than absence. Indermit Gill of the World Bank described the war as hitting the global economy in “sequential waves”: energy first, then food, then general inflation (World Bank, 2026). On that reading August sits inside the first wave, and the ECB’s rising 2027 core projection is consistent with it. This alternative does not contradict the claim here; it relocates the risk to 2027, which is where the analysis places it.
Services inflation at 3.0% is the one data point that weakens the no-spiral reading, since services still make the largest contribution to headline inflation. Services prices staying near 3% despite slowing wages can be explained by the lagged effect of wage increases carried over from 2025. The sources do not decompose services inflation, so the share attributable to the energy shock cannot be determined, and a hidden second-round component cannot be excluded.
Restrained core inflation could also reflect weak demand rather than anchored expectations: ECB staff project euro-area GDP growth of 0.9% in 2026 (ECB staff, 2026). The available data cannot separate slack from anchoring for 2026. The distinction matters for 2027, when projected growth of 1.4% (ECB staff, 2026) would reduce the demand restraint; that recovery is consistent with the projected rise in core inflation to 2.6%.
6. Outlook: Türkiye, Saudi Arabia and the World
For the euro area the first decision point is the ECB meeting on 29 October 2026 (ECB, 2026c). Since the ECB gave no pre-commitment on its rate path (ECB, 2026a), a rise in services and goods inflation in the September data could put a further hike on the table; if those items stay at August levels, the bank has grounds to look through the direct effect. The IMF and World Bank Annual Meetings in Bangkok on 12–18 October (International Monetary Fund, 2026) are when the IMF is expected to update its July global inflation forecast for September oil developments; the exact World Economic Outlook release date has not been verified. US September CPI on 14 October (BLS, 2026b) will show whether core inflation moves above 2.4%.
Türkiye is the euro area’s counter-case. According to the central bank’s meeting summary, household inflation expectations rose to 45.6%; market participants expect 29.4% at end-2026 (Dünya, 2026). Unlike the euro area, with long-term expectations anchored near 2%, energy price increases in Türkiye enter pricing and wage decisions faster. TurkStat publishes September inflation on 5 October 2026, against a market expectation of 2.12% month on month (Uzmanpara, 2026). An outturn well above that figure would be the first sign of accelerating indirect effects.
In Saudi Arabia the shock passes through volume and revenue rather than prices. The 2027 pre-budget statement projects inflation of about 2.1% and a 3.6% real GDP contraction for 2026 (Arab News, 2026). For an exporter, the risk that appears as second-round inflation in importers appears as growth risk.
7. Conclusion
As of September 2026 the oil shock in the euro area remained a direct effect. Energy inflation of 14.3% alongside food and goods inflation near 1% shows limited indirect pass-through, and wage growth slowing from 3.5% to 3.3% shows no second-round effect. Consistent with Choi et al. (2018), anchored long-term expectations are the likely reason the shock has not spread beyond energy, although the 2026 data cannot exclude weak demand as a contributing restraint. The risk lies in the lagged transmission built into the ECB projection, where core inflation rises to 2.6% in 2027, and in oil assumptions cut off on 19 August. In Türkiye, where expectations are not anchored, the probability that the same shock becomes a second-round effect is structurally higher.
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Furkan Mahmut Tameroglu