Oil and Inflation: Implications for European Corporates

The sensitivity of euro area inflation to oil price volatility has declined, a development with positive implications for the credit outlook of European energy companies. As outlined in a recent KBRA research report, this reduced inflationary pass-through bodes well for economic stability, which underpins the credit health of many borrowers.

KBRA has observed downward pressures on oil prices brought about by underlying supply and demand fundamentals, diminishing the role that geopolitics and the supply chain have on oil price setting. This dynamic suggests that the risk of extreme oil price spikes is moderating, which should also mitigate inflationary pressures to a degree.

In this report, we detail our views on how Europe’s reduced dependency on oil will impact the broader economy, with a focus on European Union (EU) energy importers, oil…