Such transitory shocks to energy price would presumably have a smaller effect on inflation than the morepersistent oil price shocks of the 1970s and early 1980s. Increased globalization and other sources of increased competition may also have lowered the sensitivity of domestic inflation to aggregate demand, thereby flattening the Phillips curve. However, the evidence on this last point is limited and 11 inconclusive.
Inflated prices of raw materials and oil are a flip side of China’s explosive growth. Everyone who regularly refuels his car, can agree on this. On balance, Chinese economic development has been beneficial for Europe.