FUEL PRICE INFLATION AND CONSUMER CONFIDENCE IN THE EURO AREA: EVIDENCE OF LAGGED, ASYMMETRIC AND REGIME-DEPENDENT TRANSMISSION
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Abstract
The sharp increase in energy prices following the COVID-19 pandemic, the war in Ukraine, and subsequent geopolitical tensions in the Middle East has reignited interest in the relationship between fuel prices and household expectations. While previous studies have focused primarily on international crude oil prices, considerably less attention has been given to retail fuel price inflation and its effect on consumer confidence. This study uses monthly data covering the period from January 2018 to June 2026 to investigate the dynamic relationship between annual fuel price inflation, as measured by the Harmonised Index of Consumer Prices (HICP), and the Consumer Confidence Indicator (CCI) in the euro area. The empirical analysis employs correlation analysis, ordinary least squares regression, and the Chow structural break test to examine the timing and stability of the transmission mechanism. The results indicate an optimal transmission lag of nine months, suggesting that changes in fuel price inflation are gradually reflected in household expectations. Regression analysis revealed a statistically significant inverse relationship between fuel price inflation and the consumer confidence indicator. Furthermore, the estimated effect was significantly stronger during the inflation build-up phase preceding the fuel price peak in April 2022 than during the subsequent unwinding period. The Chow test confirms the presence of a statistically significant structural break, showing that the transmission mechanism depends on the regime rather than remaining constant over time. These findings contribute to existing literature by providing new evidence based on retail fuel prices. They identify the optimal transmission lag and demonstrate the asymmetric response of consumer confidence across the different phases of the inflation cycle.
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fuel inflation, consumer confidence, HICP, euro area, asymmetry, structural break
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