- Emerging Markets Face Greater Inflation Risks From Energy Shocks – IMF Study Finds
Global energy shocks have become far more dangerous for inflation since the COVID-19 pandemic, with the transmission of fuel and energy price increases into consumer prices tripling in many economies, according to a new International Monetary Fund working paper.
The IMF study, which examined inflation trends across 70 advanced and emerging economies between 2015 and 2024, found that the cumulative pass-through from energy prices into headline inflation rose sharply after 2020, from about 0.02 before the pandemic to nearly 0.10 in the post-COVID period.
The finding suggests that a 1 per cent rise in energy prices now generates a larger and more persistent effect on consumer prices than it did before the pandemic, particularly in emerging markets and countries without inflation-targeting monetary policy frameworks.
“This heightened sensitivity reflects both the exceptional scale of recent global supply shocks and the erosion of some inflation-dampening forces that prevailed during the 2010s,” the IMF noted.
The paper said the post-pandemic inflation crisis unfolded in two phases. The first came during the reopening of the global economy after COVID-19 lockdowns, when strong consumer demand collided with constrained production networks, labour shortages and shipping disruptions.
The second, and more severe, phase followed Russia’s invasion of Ukraine in early 2022, which sent global oil, natural gas, grain and fertiliser prices sharply higher.
According to the IMF, countries heavily dependent on imported fuel and food suffered the strongest inflationary spillovers, especially where governments lacked the fiscal space to cushion rising prices.
Emerging economies recorded significantly larger pass-through effects than advanced economies. The study found that cumulative energy-price pass-through reached about 0.06 in emerging markets, while remaining largely statistically insignificant in advanced economies.
The IMF attributed the difference to several structural factors, including higher energy weights in household consumption baskets, faster domestic price adjustments, exchange-rate pressures and weaker anchoring of inflation expectations in emerging markets.
Monetary policy credibility also mattered. Countries operating inflation-targeting frameworks experienced lower inflation pass-through than non-inflation-targeting economies.
The IMF estimated that pass-through in inflation-targeting countries averaged around 0.04, compared with approximately 0.14 in economies without formal inflation-targeting systems.
The study, however, stressed that inflation targeting did not eliminate inflationary pressure. Rather, it helped moderate the scale and persistence of second-round effects by better anchoring wage and price expectations.
The IMF also examined the role of government subsidies. It found that countries with higher fossil fuel subsidies were able to reduce the transmission of energy-price increases into broader inflation.
Economies with higher fuel subsidies recorded pass-through effects of about 0.05, compared with roughly 0.09 in countries with lower subsidy support. But the Fund warned that subsidies, while useful in temporarily stabilising inflation, often create fiscal burdens and long-term inefficiencies.
The study also found an important asymmetry in inflation behaviour: consumer prices react more strongly when energy prices rise than they fall when energy prices decline.
That pattern, the IMF said, reflects price rigidity and inflation persistence, meaning households and businesses often suffer the full effect of rising energy costs but do not always benefit proportionately when global prices ease.
For emerging and frontier economies, the findings carry major policy implications. Energy import dependence, exchange-rate weakness and limited fiscal space can quickly turn external oil and fuel shocks into domestic inflation crises.
The IMF said future inflation shocks could become more frequent as geopolitical tensions, climate-related disruptions and energy market volatility reshape the global economy.
It called on policymakers to strengthen inflation credibility, improve energy resilience, diversify energy supply systems and design more targeted and fiscally sustainable support mechanisms to cushion vulnerable households and businesses during future supply shocks.
The message is clear: the post-COVID world has made energy inflation more powerful, more persistent and more politically difficult to manage.
For countries such as Ghana, where fuel prices can quickly feed into transport fares, food distribution costs, utility pressures and imported inflation, the IMF’s warning reinforces a familiar lesson: energy resilience is no longer only an infrastructure issue. It is now central to price stability, fiscal discipline and economic credibility.
