Rising energy prices stemming from turbulence across N. Africa and the Middle East will only have a modest impact on GDP and inflation in the near term, according to a new OECD report, “The Effects of Oil Price Hikes on Economic Activity and Inflation."

The authors use the OECD’s Global Model to gauge the effects of oil price hikes on activity and inflation.


The Model projects that a $10 increase in the price of oil could reduce activity in the OECD area in the second year after the shock by two tenths of a percentage point. The price shock is expected to raise inflation by roughly two tenths of a percentage point in the first year and by another one-tenth in the second year.

If the $25 increase in the price of oil that has taken place since the Tunisian uprising were to be sustained, activity could be reduced by about 0.5 percentage points in the OECD area by 2012, and inflation could rise by 0.75 percentage points.

Given currently low levels of inflation and forward-looking expectations, monetary policy may not need to react to the recent oil price hikes, according to the report.