Running on empty: Climate risks and the fragility of global energy and food supply chains − speech by Swati Dhingra

Introduction

Good evening, and thank you for the invitation to speak.

Recent events in the Gulf are another reminder that inflation is often driven by forces beyond the reach of monetary policy. The recent rise in energy prices has once again exposed the vulnerability of economies to geopolitical shocks and the difficult choices they create for central banks.

Increasingly, those shocks are linked to climate and energy systems. Dependence on fossil fuels, the physical impacts of climate change, and the policies required to decarbonise economies are no longer peripheral risks: they are all becoming more important determinants of inflation and macroeconomic stability.

This evening, I want to explore what that means for inflation, for the clean energy transition, and for central banks in the years ahead.

Climate risks to inflation

Climate change is relevant to inflation through three distinct channels. The first is the economy’s ongoing dependence on geopolitically exposed fossil fuels, which significantly affect headline inflation via direct energy components of CPI as well as a wide range of energy-intensive goods and services. The second is the physical impact of a changing climate, as increasingly frequent and severe extreme weather events disrupt supply, particularly in the agricultural sector. The third is the policy response to climate change, as the measures required for a green transition can generate their own inflationary pressures. In other words, the drivers, the consequences, and the solutions to climate change are all relevant to price stability (Talbot, 2026)^{footnote [1]}. These channels are becoming more material over time. Climate-related shocks can, in principle, be assessed like any other shock, by weighing their expected effects on inflation and output. But two features make them particularly challenging: their salience for households, especially through food and energy prices, and their increasing frequency and severity, which make their first-round effects progressively harder to look through (NGFS, 2026a).

Before discussing these channels, it is worth being clear about the role of monetary policy. Climate policy is rightly the responsibility of elected governments. The role of central banks is not to deliver the transition, but to maintain price stability in an economy increasingly affected by climate change and the green transition. The question I will address here is not whether central banks should pursue climate objectives, but how climate-related shocks affect inflation and the conduct of monetary policy.

Energy prices are ‘systemically significant’ for inflation, because a wide range of goods and services depend critically on energy as an input. As shown in Figure 1, energy price shocks have coincided with the vast majority of UK inflationary episodes. Energy price spikes coincided with eight of the ten episodes in which inflation was near or above 5%.

In the latest inflationary episode, energy and energy-intensive components accounted for more than three-quarters of inflation at the peak of the 2022–23 episode (ONS, 2022). Figure 2 decomposes UK CPI inflation into its underlying cost components and shows the extent to which the 2022–23 episode was driven by energy and imported costs, which together accounted for the bulk of inflation at its peak, and they are the components most directly exposed to geopolitical events. As contributions from energy and imported costs subsided over 2024–25, the remaining inflationary pressure became increasingly domestically generated, with wages and profits, shown in gross operating surplus and residual margins, accounting for a growing share of the remaining inflationary pressure.

Taking inter-industry linkages into account, energy represents a similar share of the costs of the CPI basket as before the pandemic (around 8% in 2023, up slightly from 6.4% in 2019, as shown in Figure 3). This exposure is shaped by a global energy trade that has been substantially reconfigured since 2022, with US supply now of much greater significance to the EU and UK. As Figure 4 shows, US LNG, which was a marginal supplier before the invasion of Ukraine, has become the largest single source of seaborne LNG into the EU, and a far more significant supplier to the UK. This is part of a wider pattern of global LNG trade diversion, as Russian flows to the West have fallen and been redirected towards Asia.

As suggested by the current Hormuz crisis, there is a distinct possibility that fossil fuel supply chains will continue to be disrupted and reshaped by geopolitical tensions. From this perspective, in the current environment, the key driver of climate change is also the primary threat to price stability.

Climate-related shocks often require changes in relative prices. If fossil fuel supplies are disrupted, energy prices should rise. Monetary policy cannot prevent these relative-price adjustments from occurring, nor should it necessarily try to (Guerrieri et al., 2023, Afrouzi and Bhattarai, 2026). Its role is instead to ensure that such shocks do not become embedded in broader inflation dynamics through expectations, wages, and pricing behaviour.

The second channel is the physical impact of climate change itself. Whereas fossil-fuel shocks work mainly through energy prices, physical climate shocks often affect inflation through food. Extreme temperatures, droughts, floods and other weather-related disruptions can reduce agricultural supply, pushing up food prices and, in turn, headline inflation. A growing literature finds that climate-related temperature and precipitation extremes, natural disasters, and events associated with ENSO (El Niño–Southern Oscillation) cycles can all generate negative supply shocks that place upward pressure on inflation in the short run, primarily through food. Recent analysis by the NGFS, including work chaired by my Bank colleague James Talbot, reaches a similar conclusion. Its scenario analysis of acute physical shocks, with a particular focus on the ENSO cycle, shows that droughts and related disruptions can raise inflation while weighing on output, creating material trade-offs for monetary policy (NGFS, 2026a). In related work on food inflation, Kotz et al. (2025) estimate that extreme summer heat in 2022 added around 0.43–0.93 percentage points to EA food inflation.

These effects can be highly non-linear: more severe events tend to produce disproportionately larger inflationary effects (Faccia et al., 2021; Parker, 2018). And even shocks to a single product can matter for aggregate food inflation. Chocolate alone contributed roughly 1 percentage point to UK food inflation in 2025, reflecting a surge in cocoa prices driven largely by extreme heat in West Africa and the fact that chocolate accounts for close to 6% of the UK food basket (Dhingra, 2025; Barmes, 2025). In Greece, a 64% rise in olive oil prices following severe droughts in Southern Europe accounted for close to half of headline food inflation in April 2024 (National Bank of Greece, 2024). Figure 5 shows how spikes in global agricultural commodity prices — cereals, oils and sugar — have coincided with major weather shocks and ENSO phases. Central banks are increasingly tracking these dynamics: for instance, the Bank of England’s August 2025 Monetary Policy Report noted weather-related disruption in UK food prices, including the effect of extreme weather on animal feed costs.

The available evidence suggests that these effects are likely to intensify. Kotz et al. (2024) estimate that by 2035 higher average temperatures could add 0.32–1.18pp annually to global headline inflation, and 0.92–3.23pp to global food inflation, under a high-emissions scenario. Effects tend to be larger in developing economies, where food has a greater basket weight and exposure to extreme weather is higher, but advanced economies, especially the UK, are far from insulated, since climate hazards transmit through global commodity markets and supply chains (Peersman, 2022; Cevik and Gwon, 2024). Such research is particularly relevant at present, as we are currently in the early stages of an El Niño, with a 63% probability of becoming a very strong event in late 2026 to early 2027, which would rank among the largest on record (NOAA, 2026). This raises the risk of higher global prices for weather-sensitive crops such as cocoa, edible oils, sugar, rice and coffee.

The third channel through which climate is relevant to inflation is the policy response to climate change. The measures required to decarbonise can generate their own inflationary pressures. The empirical literature generally finds these effects small to date: carbon taxes add around 0.1–0.15pp per year (Konradt et al., 2024; Moessner, 2025), with emissions trading schemes somewhat larger but still moderate (Känzig & Konradt, 2024). Figure 6, however, suggests a more material role during the recent energy price shock, with policy events concerning the supply of UK-relevant carbon emissions tightening the (future) supply of carbon allowances in both the UK and EU^{footnote [2]}. Bank estimates suggest that around 1 percentage point of both the increase and subsequent fall in headline inflation over the 2021-23 period is likely to have originated from these changes to carbon policy (Breeden, 2025; Greene, 2025). This is a material effect for monetary policy: for comparison, the energy price cap reduced peak CPI inflation by around 2.5 percentage points in late 2022 (OBR, 2022). Looking over a longer horizon, changes in carbon policies have both inflationary and disinflationary impacts, albeit at much smaller magnitudes than in recent years.

Figure 6: Climate policies affecting inflation

Past contribution of carbon policy shocks to developments in UK headline inflation

• Source: Bank staff analysis based on Copeland et al (2025) and Brandt et al (2026). The figure reports the historical contribution of the identified UK-relevant policy shock to UK headline inflation as estimated by the VAR model in Copeland et al. (2025). To provide conservative estimates, the left-hand side chart is estimated using a “low carbon price” sample period (June 2008 to December 2020) whereas the right-hand side chart is estimated using the full sample, which includes the “higher carbon price”, period (June 2008 to April 2024). 

The modest size of these estimates should not be taken to mean that transition policy is unimportant for inflation. It mainly reflects the fact that existing carbon-pricing schemes have so far operated with relatively low prices and incomplete coverage. But that is unlikely to remain true if policy is aligned with net zero. Carbon prices would need to rise substantially, and emissions pricing would need to cover a wider share of activity (Figure 7a).^{footnote [3]} The implication is that transition policy may become more relevant for inflation over time. That does not mean mitigation is undesirable: credible and well-designed climate policy can reduce the much larger long-term economic costs of climate change, including the physical risks that would otherwise create more frequent and severe supply shocks. But the path to those long-term gains may involve near-term trade-offs for monetary policy. New quantitative analysis by the NGFS, IMF, Swiss National Bank and Bank of England reaches a similar conclusion: mitigation policies can reduce the long-run economic damage from climate change, but they may also raise inflation and weigh on output in the near term, particularly if policies are not anticipated or lack credibility (NGFS, 2026b). This becomes increasingly relevant as the climate policy regime tightens. As Figure 7b,c shows, sectoral coverage is broadening and free permit allocation is being progressively withdrawn in the UK ETS, while projected carbon prices rise across scenarios. Firms have begun to adjust to the realised and expected developments (Figure 8). As carbon pricing becomes more widespread and binding, its contribution to inflation, and the scope for it to be underestimated increases.

Taken together, fossil-fuel dependence, physical climate shocks and transition policy are no longer peripheral risks for inflation. The experience since Russia’s invasion of Ukraine shows that they can become macro-relevant quickly, reshaping energy markets, moving headline inflation, and complicating the task of monetary policy.

Lessons from recent inflationary episodes

One of the key lessons from the inflationary episodes of recent years is a much better understanding of how large supply shocks propagate through the economy. The experience of 2021–23 provided valuable evidence on the pass-through of energy and import prices to domestic inflation, the interaction between energy, food and supply-chain disruptions, and the conditions under which temporary shocks become more persistent. These lessons provide a useful framework for assessing the current shock.

At the same time, the current episode differs in important respects. Oil price shocks differ from gas price shocks in how they affect households and firms, while the economic environment has also changed. Initial conditions will have a dampening effect on the pass-through of higher energy prices. Weaker demand would be expected to rein in firms’ pricing power. We can already observe signs of diminished wage “bargaining power” in the labour market flows data (corroborated by reports from Agency contacts). Despite somewhat elevated short-term household inflation expectations, job switching remains subdued, suggesting slack is containing pay pressures for firms.

The recent experience of higher inflation may plausibly have changed household and firm behaviour. The implications are ambiguous. Firms and households may respond more quickly to cost shocks, accelerating the pass-through of higher costs to prices and wages and allowing the necessary relative price adjustments to occur more rapidly. It may increase the tendency of firms and workers to incorporate inflation into future pricing and wage decisions, raising the risk that a temporary shock generates more persistent inflationary pressures. The challenge is to distinguish, in real time, normal pass-through from self-sustaining inflation dynamics, which requires looking beyond headline inflation to assess a broad range of indicators.

From a monetary policy perspective, the optimal response depends on the nature and persistence of the shock (Ambrosino et al., 2026, Drechsel et al., 2026). If it primarily represents a temporary relative-price adjustment, attempting to fully offset its direct impact on inflation through higher interest rates may impose unnecessary costs on output and employment. The task is to prevent first-round effects from evolving into broader and more persistent inflationary pressures. If, however, there is evidence that the shock is generating second-round effects through wages, expectations or pricing behaviour, a stronger policy response may be warranted. The better monetary policy can distinguish between temporary relative-price adjustment and self-sustaining inflationary dynamics, the more effectively it can balance returning inflation to target against unnecessarily costly adjustment in economic activity. The appropriate monetary policy response also depends on the shock’s wider context — including the state of the business cycle, the slope of the Phillips curve, and whether inflation expectations are already elevated (NGFS, 2026a).

Policy implications

The green transition can support price stability through two main channels.

First, it reduces the likelihood and severity of climate-related supply shocks that increasingly contribute to inflation (Figure 2), particularly through food prices. Building on a previous point, extreme weather events are already affecting inflation (Kotz et al., 2025). Though concentrated in food sub-components, these shocks can be large enough to move headline inflation, for example via animal feed costs and higher beef prices (ECB, 2025). More broadly, climate-related disruptions to agricultural production transmit internationally through global commodity markets, affecting both emerging and advanced economies (Peersman, 2022). These effects are often amplified by interactions between food and energy markets: fertiliser production is highly energy-intensive, pesticides and agricultural chemicals rely heavily on fossil-fuel inputs, and higher energy prices raise transport, irrigation and processing costs throughout food supply chains. Consequently, climate- and energy-related shocks can reinforce one another, increasing both the magnitude and persistence of food inflation. By mitigating the associated physical risks of climate change, the green transition can therefore help reduce the frequency of such supply-driven inflation shocks.

Second, the green transition has the potential to reduce exposure to volatile fossil fuel prices, although the relationship is not straightforward. Renewable technologies such as wind and solar have near-zero marginal operating costs and tend to lower wholesale electricity prices through the merit-order effect, whereby they displace more expensive fossil-fuel generation.^{footnote [4]} However, in many electricity markets, prices are determined by the marginal generator, which is typically a gas-fired power plant during periods of high demand or low renewable output (Zakeri et al., 2023). Consequently, as long as gas and other fossil fuels are required to meet demand in peak hours, fossil fuel price volatility will feed through to household energy inflation even as renewable capacity expands. Nevertheless, evidence suggests that as renewable penetration reaches sufficiently high thresholds and is complemented by storage capacity and demand-side flexibility, electricity systems become progressively less exposed to fossil fuel volatility (Brown et al (2025), Leslie et al (2020), Cornejo et al., (2025)). Reducing this exposure lies primarily with fiscal policy, through measures that raise the relative price of carbon or support green investment. Monetary policy is not suited to lead this transition but by delivering price stability, it underpins the environment in which such investment can be made. For example, in the UK, recent policy has sought to weaken this link, with reforms designed to break the influence of gas on electricity prices (DESNZ, 2025). Contracts for Difference are central to this effort, as they decouple the revenue renewable generators receive from volatile wholesale gas prices (Talbot, 2026).

The primary responsibility for driving the transition rests with elected governments, which can change the relative prices of fossil fuels through carbon pricing, regulation, and support for low-carbon technologies. Monetary policy, by contrast, often is assigned one primary objective, price stability, and a limited set of instruments with which to achieve it. It is therefore difficult for central banks to be the primary actors in the transition while also meeting their inflation mandates. However, monetary policy can still affect the pace of the transition through its effect on financing conditions and investment. Understanding these effects is important, not because central banks should pursue climate objectives, but because climate change and the transition increasingly shape the inflation outlook they are tasked with managing.

Monetary tightening can slow the green transition through several channels. First, higher interest rates disproportionately increase the cost of renewable energy investment, as such technologies are highly capital intensive with significant upfront costs. A large body of evidence shows that renewable energy projects are significantly more sensitive to financing conditions than fossil fuel generation (Monnin, 2015; Egli et al. 2018; Schmidt et al. 2019; Martin et al. 2024; Fornaro et al., 2025; Serebriakova et al., 2026, Jorda et al., 2026). Egli et al (2018) estimates that falling interest rates accounted for nearly 20% of the reduction in onshore wind costs between the early 2000s and 2017 (Figure 9). Schmidt et al. (2019) presented scenarios to show how a reversal of the low-interest-rate environment could significantly increase the levelised cost of electricity for both wind and solar projects.^{footnote [5]} These concerns materialised following the sharp monetary tightening cycle of 2022–23, when higher financing costs, combined with supply-chain inflation, substantially increased renewable project costs and led to widespread project delays, renegotiations, and cancellations, particularly in offshore wind. This need not imply a lasting tension between price stability and the transition. What matters more for green investment is not the level of Bank Rate but the long-term government bond yield that forms the risk-free baseline against which investors’ financing costs are set. Monetary policy can influence longer-term yields through delivering its price stability mandate: by keeping inflation low and stable, it anchors inflation expectations and compresses the inflation risk premium embedded into long-duration yields. While tighter policy may weigh on such investment in the near term, the price stability it helps secure can support investment over the longer run by reducing uncertainty and anchoring long-term financing conditions (Quarterly Bulletin (2022 Q4)).

Second, tighter monetary policy can also add to the costs that determine the prices at which new capacity for renewable investment is brought forward. This can create some frictions in administered support schemes that delay investment. For example, in systems such as the UK’s Contracts for Difference (CfD) regime, higher financing costs increase the strike prices developers require to make projects commercially viable. Taking the UK offshore wind sector as an example – following a record allocation in the 2021 CfD auction round, no offshore wind projects bid successfully in the subsequent round after developers concluded that the administrative strike price no longer reflected significantly higher capital and financing costs. The strike prices achieved in later auctions rose substantially, illustrating how tighter monetary policy in response to rising commodity prices fed through to the longer-term government bond yields that match the maturities of CfD contracts. This had the further effect of pushing up on strike prices, since these yields form the baseline cost of capital for such projects (Figure 11).

Third, tighter monetary policy may affect incentives for decarbonisation through its impact on fossil fuel prices. Since oil, gas and other fossil fuels are priced globally in US dollars, tighter monetary policy can lower their sterling cost by strengthening the pound against the dollar, placing downward pressure on domestic prices through the exchange rate channel. The costs of renewable energy, by contrast, are predominantly upfront capital and financing, which tighter policy raises through the broader financial conditions and longer-term government bond yields that underpin them. Tighter policy therefore shifts relative prices in favour of carbon-intensive energy, reducing the incentive to invest in efficiency and low-carbon alternatives. Lower fossil fuel prices can therefore improve the relative competitiveness of carbon-intensive energy sources and reduce the incentives to invest in energy efficiency and low-carbon alternatives. When gas prices are very high, economies that still rely in part on coal may revert to it in the short run, particularly during peak-demand hours when nuclear and renewable generation cannot meet demand in full. When fossil fuel prices are lower, by contrast, this generally weakens the economic incentives supporting the transition away from carbon-intensive energy systems.

Finally, monetary tightening appears to have particularly adverse effects on green innovation. Recent empirical evidence suggests that contractionary monetary policy disproportionately reduces investment by green innovators and slows the development of low-carbon technologies. Aghion et al. (2024), for example, estimate that tighter credit conditions account for around 60% of the recent slowdown in green patenting, while Fornaro et al. (2025) find that an unexpected 25 basis point increase in policy rates reduces green innovators’ investment by around 2%, with effects that persist for several years. Similarly, Serebriakova et al. (2026) find that monetary contractions are associated with sizeable reductions in new renewable capacity additions across Europe. Taken together, these findings suggest that while monetary tightening may be necessary to achieve price stability objectives, it can also slow the pace of the green transition by raising financing costs, increasing required support prices for renewable projects, reducing the relative cost of fossil fuels, and dampening green innovation.

There are no obvious or easy solutions to this trade-off. One view is that the trade-off should not affect how central banks calibrate their stance. (Schnabel, 2022), for instance, argues that price stability is necessary to foster the enabling environment for green investment to take place while fiscal authorities accelerate efforts to support the green transition. Similarly, Martin et al. (2024) and Schmidt et al. (2019) take monetary policy as given and suggest that fiscal policy must adapt to address the negative repercussions on the transition. By contrast, Dikau et al., (2019) propose a longer horizon and more supply-side instruments for inflation targeting in a world with frequent climate shocks. In the UK, the inflation target is set by the government, and the Monetary Policy Committee is tasked with achieving it. Subject to maintaining price stability, the Bank is also expected to support the government’s broader economic objectives. The role of monetary policy is therefore not to deliver the transition, but to maintain price stability in an economy increasingly affected by climate change and decarbonisation. As these shocks become macro-relevant, the interaction between monetary, fiscal and structural policy becomes increasingly important.

Evidence that monetary tightening can slow green investment and innovation strengthens the case for a more coherent monetary-fiscal policy mix, particularly in response to supply shocks. If climate-related shocks and transition policies generate first-round price increases, relying primarily on monetary tightening risks suppressing demand while also weakening the investment needed to reduce future supply-side inflation risks. Evidence from the DMP Survey shows planned climate investment is already running below the CCC's Balanced Net Zero Pathway, and easing financial constraints could help close that shortfall (Srivastava et al., 2025). Where firms are financially constrained, tighter policy risks squeezing those constraints further, weakening exactly the investment needed to ease future supply-side inflation. This is especially problematic if contractionary monetary policy has persistent negative effects on productive capacity more broadly, as recent evidence suggests (Fornaro and Wolf, 2023; Ma and Zimmermann, 2023; Guérin, 2023; Jordà et al., 2024). In the climate and energy context, the risk is that policy responds to today’s supply shock in a way that makes tomorrow’s supply side less resilient.

There are a number of considerations in assessing the role for fiscal policy in offsetting the first-round effects of shocks. Where energy or food price spikes are driven by supply disruptions rather than excess demand, fiscal measures can cushion households and firms directly. Unconventional and largely untargeted fiscal measures are estimated to have reduced euro-area inflation by one to two percentage points in 2022, smoothing its path over time (Dao et al., 2023). The Banco de Espana (2023) estimates that the particularly sizable package of fiscal measures in Spain cut inflation by around 2.3 percentage points in 2022. Relatedly, Carli et al. (ongoing) show that a fiscal mix recycling carbon-tax revenues into green investments limits volatility in energy markets, output, and inflation, reducing the required monetary policy response. The paper further makes the case that the optimal response to climate-policy-driven energy price fluctuations is to look through them, resolving the trade-off in favour of output stabilisation. The case is strongest, however, for interventions that are temporary, targeted and time-limited, absorbing part of the shock while preserving medium-term price signals and incentives for energy efficiency and decarbonisation. This is not straightforward, as better targeting requires investment in the data and institutional capacity (Jameson et al., 2025). In a world of more frequent supply shocks, the most effective measures will be those that reduce supply vulnerabilities before shocks hit (Bonham et al., 2026), but where prevention falls short and shocks still feed through to prices, fiscal policy may become an increasingly important complement to monetary policy.

Some authors have argued that central banks could seek to mitigate the impact of tighter financial conditions on green investment through instruments such as collateral and asset purchase frameworks, green lending schemes or targeted financing operations (Fornaro et al., 2025). This need not imply abandoning price stability mandates. Rather, it highlights the importance of complementary fiscal, regulatory and industrial policies if maintaining price stability requires tighter financial conditions. For example, during 2022-23 gas set the wholesale electricity price and drove it sharply higher. Non-CfD renewable generation earned that same high price despite very low marginal costs, and so was captured by the Electricity Generator Levy. Possible safeguards include collateral and asset purchase frameworks that avoid penalising low-carbon investment. These tools are more controversial during tightening cycles, because they can appear to pull against the restrictive stance of policy. But the underlying rationale is that green investment is not just another interest-sensitive sector: it affects the economy’s future exposure to fossil fuel volatility and climate-related supply shocks.

A related question is whether central banks should account for climate-related financial risks within the implementation of monetary policy operations. In the UK, for example, the Bank has incorporated climate considerations into collateral frameworks and corporate bond purchases. The primary rationale for such measures is not to direct credit towards particular sectors, but to ensure that central bank balance sheets appropriately reflect climate-related financial risks.

This also strengthens the case for clearer allocation of responsibilities between monetary and fiscal authorities. The Bank’s remit provides a useful starting point. Governments determine society’s objectives, including climate and industrial policy, while the Monetary Policy Committee’s primary responsibility is to maintain price stability. Monetary policy remains essential for anchoring inflation expectations and preventing temporary price shocks from feeding into broader wage and price-setting, but it is a blunt instrument for dealing with relative-price shocks arising from climate change, energy markets, or the green transition. Fiscal authorities are better placed to address the distributional consequences of these shocks, protect productive investment, and reduce future inflation vulnerability. A more coherent policy mix would therefore allow monetary policy to focus on second-round effects and demand management, while fiscal policy addresses the first-round impact of major supply shocks and addresses their underlying causes (Bénassy-Quéré, 2024). Importantly, this need not imply discretionary coordination or a weakening of central bank independence. Rather, it points towards the value of well-designed automatic stabilisers and pre-defined policy frameworks. By making the policy mix more automatic, systematic and predictable, such arrangements could improve the response to large supply shocks while minimising concerns about fiscal dominance. Under such a framework, the objective would not be to weaken the commitment to price stability, but to achieve it at lower economic cost and with fewer adverse consequences for the economy's future resilience.

The broader conclusion is not that central banks should deviate from their price stability mandates in response to climate- or transition-related inflation. Rather, it is that climate change, energy security and the green transition have become increasingly important determinants of price stability itself. The largest inflationary episodes faced by advanced economies in recent years, from the post-pandemic energy crisis to the current geopolitical tensions in the Gulf, have been driven primarily by supply-side shocks originating in energy and commodity markets. These are the moments when monetary policy matters most, yet they are also shocks that monetary policy is least able to address directly. While monetary tightening can help prevent temporary price shocks from becoming embedded in inflation expectations and wage-setting behaviour, it cannot address the underlying shortage of energy or food that gave rise to those shocks.

Thank you.

Thanks to David Barmes, Jenny Chan, Sofia Carollo, and Donal McVeigh for help preparing this speech, and to Sarah Breeden, Rohan Churm, Hannah Copeland, Francesca Diluiso, Lukasz Krebel, Danae Kyriakopoulou, Edwin Millar, Nicola Shadbolt, Fergal Shortall, Caspar Siegart, James Talbot, Matt Trott, Boromeus Wanengkirtyo, and Ivan Yotzov for their comments and help with data and analysis.