The distributional implications of the impact of fuel price increases on inflation

Kangni Kpodar and Boya Liu

Energy Economics, 2022, vol. 108, issue C

Abstract: 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.

Keywords: Fuel prices; Inflation; Local projections; Household welfare (search for similar items in EconPapers)
JEL-codes: E30 E31 H23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The Distributional Implications of the Impact of Fuel Price Increases on Inflation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:108:y:2022:i:c:s0140988322000895

DOI: 10.1016/j.eneco.2022.105909

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