How OPEC Oil Shocks Shape U.S. CPI Inflation: Evidence from an IV-SVAR Approach

Subash Bhandari and Hyeongwoo Kim ()

No auwp2026-06, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: This paper investigates the transmission of structural global oil market shocks to U.S. inflation using an IV-SVAR approach applied to highly disaggregated CPI components. We specifically utilize oil supply news shocks-market expectations of future OPEC production changes-and find that a news-driven 10% oil price increase triggers a significant 5% surge in headline inflation. Analyzing over 55 sectoral indexes reveals that these effects are heavily concentrated in energy-related goods, while other components remain muted or respond negatively. We identify consumer budget reallocation as a primary mitigating mechanism: households facing rising energy costs shift demand toward more affordable alternatives, such as used vehicles and food at home. By employing weak-instrument robust inference, this study demonstrates that headline inflation dynamics are driven by specific energy sub-components and adaptive consumer behavior rather than broad-based sectoral increases.

Keywords: OPEC News Shock; Oil Supply Shock; Disaggregated CPI Components; Instrumental Variable Structural Vector Autoregression (search for similar items in EconPapers)
JEL-codes: E3 F4 Q4 (search for similar items in EconPapers)
Date: 2026-04
New Economics Papers: this item is included in nep-ene and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cla.auburn.edu/econwp/Archives/2026/2026-06.pdf (application/pdf)

Related works:
Working Paper: How OPEC Oil Shocks Shape U.S. CPI Inflation: Evidence from an IV-SVAR Approach (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:abn:wpaper:auwp2026-06

Access Statistics for this paper

More papers in Auburn Economics Working Paper Series from Department of Economics, Auburn University Contact information at EDIRC.
Bibliographic data for series maintained by Hyeongwoo Kim ().