Oil Price-Driven Inflation and the Channels of Pass-Through

Chen Shiu-Sheng () and Lin Tzu-Yu ()
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Chen Shiu-Sheng: Department of Economics, 33561 National Taiwan University , Social Science Building, No. 1, Sec. 4, Roosevelt Road, Taipei, Taiwan
Lin Tzu-Yu: Department of Economics, National Cheng Kung University, No. 1, University Road, Tainan 701, Taiwan

The B.E. Journal of Macroeconomics, 2025, vol. 25, issue 2, 917-950

Abstract: This paper evaluates the significance of different channels through which oil price fluctuations affect US inflation. Using monthly data from 1983 to 2024, we find that, when the underlying causes of oil price increases are not distinguished, production costs constitute a key channel amplifying the impact of oil price shocks. Wage growth and inflation expectations also contribute to the pass-through, whereas the role of monetary policy appears comparatively limited. However, further investigation into various oil price shocks reveals that the production cost channel plays a significant role only in the case of oil-specific demand shocks, whereas wage growth amplifies the transmission of both aggregate demand and oil-specific demand shocks into inflation.

Keywords: oil prices; inflation; pass-through; counterfactual analysis (search for similar items in EconPapers)
JEL-codes: E31 Q43 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/bejm-2024-0186

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