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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Chen Shiu-Sheng & Lin Tzu-Yu, 2025. "Oil Price-Driven Inflation and the Channels of Pass-Through," The B.E. Journal of Macroeconomics, De Gruyter, vol. 25(2), pages 917-950.
    • Handle: RePEc:bpj:bejmac:v:25:y:2025:i:2:p:917-950:n:1010
    DOI: 10.1515/bejm-2024-0186
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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