When to stop looking through an energy shock: one test, different answers

Victoria Shinder12 October 2026, 08:282 min read

Every central bank facing this year's energy shock is applying the same textbook rule: look through the first-round price effect, act if it spreads. Four texts published in the past week show how differently that rule plays out once it meets data — and why the decisive variable is not the oil price itself.

Jamaica: the rule triggered. The Bank of Jamaica held at 5.50% in August, treating inflation as temporary. On 29 September it raised the rate by 50 basis points to 6.0%. Governor Brian Langrin's explanation is the rule in action: energy and transport costs persisted, agricultural inflation stayed high, rebuilding after Hurricane Melissa lifted import demand, and businesses' inflation expectations rose to 7.3%. The MPC judged that the shocks had begun to generate second-round effects — the point at which looking through stops being an option.

Euro area: the rule not yet triggered. At the ECB, Philip Lane's numbers point the other way. September's 3.8% headline inflation splits into 18.8% energy and 2.3% non-energy inflation, below its pre-shock 2.4%. Services inflation eased to 3.2%. His conclusion: the rapid price-adjustment mechanisms seen in 2022 have not been activated so far. The ECB has still raised rates twice this year, which Bundesbank president Joachim Nagel describes as responding "cautiously, but firmly" while acting against persistence rather than the initial spike.

Japan: the rule depends on the starting point. Governor Kazuo Ueda's survey of five Japanese energy spikes, summarised in a Bank of Japan research paper, explains why the same shock gives different answers. In 1973 an overheated economy and wage demands turned oil into a wage-price spiral. In 1979–80 faster policy, lower starting inflation and learning kept it contained. In the 2000s, deflation absorbed it entirely. Since 2021, a cost shock moved expectations from near zero to about 1.5–2% without a spiral. His summary: oil price shocks are tests of the entire inflation regime, and the line between temporary and persistent is not mechanical.

What separates the cases. Read together, the deciding factors are the ones Ueda lists: initial conditions — how high inflation and expectations already were — wage dynamics, and the exchange rate. Jamaica entered the shock with inflation already above its range and business expectations above 7%; the euro area entered with non-energy inflation near target and services cooling. The same oil price, the same rule, opposite conclusions.

What to watch. The indicators these speeches single out are not energy prices but non-energy and services inflation, wage settlements, and firms' and households' expectations. Those are where the rule turns from "look through" to "act" — and where the next decisions in Frankfurt, Tokyo and Kingston will be justified.

Sources: Bank of Jamaica governor's briefing (BIS) — https://www.bis.org/speeches/20261007-update-and-outlook-jamaican-economy ; Philip R. Lane (ECB) — https://www.ecb.europa.eu/press/key/date/2026/html/ecb.sp261005~1d8d998ef4.en.html ; IMES Discussion Paper 2026-E-12 — https://www.imes.boj.or.jp/research/papers/english/26-E-12.pdf ; Joachim Nagel (BIS) — https://www.bis.org/speeches/20261007-shifting-ground-how-geopolitics-reshaping-growth-monetary-policy-and-role-gold-reserve-asset.pdf