The impact of oil price changes on inflation and disaggregated inflation: Insights from Ghana

Abstract

Numerous studies have examined the impact of changes in oil price on economic activities in both developing and developed countries. Yet, studies on the impact of oil price on various sectors of the economy are limited, particularly in Ghana. To contribute to the literature and inform policy actions, we examine the impact of oil price changes on aggregated and disaggregated inflation where the disaggregated inflation comprises energy CPI, food CPI, Core CPI, and transport CPI. We applied Nonlinear Autoregressive Distributed Lag (NARDL) Model to quarterly data spanning from 2000Q1 to 2021Q1. The NARDL model was suitable for analysis because it accounted for asymmetries inherent in oil prices. Our results from the NARDL model suggest evidence of the asymmetric impact of oil price change on both aggregated and disaggregated inflation. However, the asymmetric effect of oil price changes on Transport CPI was statistically higher in magnitude than the other sub-indexes of inflation, suggesting that oil price changes affect the transport sector more than the other sectors of an economy. From a policy point of view, these findings imply that to stabilize inflation, policies should be designed to strengthen the transport sector to contain oil price shocks.

Keywords

• Ghana
• Oil price change
• Inflation
• Asymmetric modeling