The Distributional Implications of the Impact of Fuel Price Increases on Inflation

November 12, 2021

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Kangni R Kpodar, and Boya Liu. The Distributional Implications of the Impact of Fuel Price Increases on Inflation, (USA: International Monetary Fund, 2021) 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

This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.

Subject: Consumer price indexes, Consumer prices, Fuel prices, Inflation, Oil prices, Prices

Keywords: Consumer price indexes, Consumer price inflation, Consumer prices, Crude oil price, Fuel prices, Fuel prices, Gasoline price change, Global, Household welfare, Impulse response function, Inflation, Inflation, Local projections, Oil prices, Price shock

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/271
Stock No:

WPIEA2021271
ISBN:

9781616356156
ISSN:

1018-5941

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