Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies

By Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, Marcos Poplawski Ribeiro

September 5, 2017

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Sangyup Choi, Davide Furceri, Prakash Loungani, Saurabh Mishra, and Marcos Poplawski Ribeiro. Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies, (USA: International Monetary Fund, 2017) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015. We find that a 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage point on impact, with the effect vanishing after two years and being similar between advanced and developing economies. We also find that the effect is asymmetric, with positive oil price shocks having a larger effect than negative ones. The impact of oil price shocks, however, has declined over time due in large part to a better conduct of monetary policy. We further examine the transmission channels of oil price shocks on domestic inflation during the recent decades, by making use of a monthly dataset from 2000 to 2015. The results suggest that the share of transport in the CPI basket and energy subsidies are the most robust factors in explaining cross-country variations in the effects of oil price shocks during the this period.

Subject: Commodities, Consumer price indexes, Inflation, Inflation targeting, Monetary policy, Oil, Oil prices, Prices

Keywords: Consumer price indexes, CPI basket, Energy price change, Global, Inflation, Inflation dynamics, Inflation expectation, Inflation pass-through, Inflation surprise, Inflation targeting, Interaction terms, Local projections, Monetary policy, Oil, Oil inflation, Oil price shock, Oil price shocks, Oil prices, Pre-existing inflation level, Wage-price spiral, WP

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/196
Stock No:

WPIEA2017196
ISBN:

9781484316658
ISSN:

1018-5941

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