If they continue to rise, they will have a negative impact on NIRG; in other words, in order to maintain a given rate of inflation, growth may have to slow. Chart 2: Crude Oil  Even if they do not rise, high prices in absolute terms will have a bearing on the commercial viability of investments across the board.
Investment activity may decline, contributing to a further erosion of NIRG. This perspective has a straightforward implication for monetary policy. When the economy is at or close to its NIRG, an increase in energy prices can trigger inflationary pressures, because there is high capacity utilization and producers can easily pass on higher energy prices to their consumers.