UK: Rising oil prices and inflation - Nomura

The most obvious and immediate effect on UK’s inflation from rising oil prices is via petrol prices (representing around 3.5% of the inflation basket) which respond with a short lag to the tune of around 5% for every £10/$13 move in oil prices, explains the research team at Nomura.

Key Quotes

“Such a move would add just under 0.2pp to the headline rate of inflation. The reason petrol prices move less sharply than oil prices in percentage terms reflects the sizable wedge between the cost of the raw material (oil) and the retail price of fuel, in turn reflecting processing costs, margins and particularly tax.”