How Large and Persistent is the Response of Inflation to Changes in Retail Energy Prices?

June 12, 2020

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Format: Chicago

Chadi Abdallah, and Kangni R Kpodar. How Large and Persistent is the Response of Inflation to Changes in Retail Energy Prices?, (USA: International Monetary Fund, 2020) accessed November 21, 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 estimate the dynamic effects of changes in retail energy prices on inflation using a novel monthly database, covering 110 countries over 2000:M1 to 2016:M6. We find that (i) inflation responds positively to retail energy price shocks, with effects being, on average, modest and transitory. However, our results suggest significant heterogeneity in the response of inflation to these shocks owing to differences in factors related to labor market flexibility, energy intensity, and monetary policy credibility. We also find compelling evidence of asymmetric effects—under sufficiently large shocks—in the case of high-income and low-income countries, with increases in retail fuel prices inducing larger effects on inflation than decreases in fuel prices.

Subject: Energy prices, Fuel prices, Inflation, National accounts, Oil prices, Personal income, Prices

Keywords: Asymmetries, Energy price, Energy prices, Fuel price shock, Fuel prices, Global, Inflation, Inflation response, Local projections, Non-linearity, Oil prices, Personal income, Price, Price shock, Retail fuel prices, Shocks lead, Spiral effects, Standard deviation, Wage-price spiral effects, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/093
Stock No:

WPIEA2020093
ISBN:

9781513546094
ISSN:

1018-5941

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