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Asymmetric impact of oil price and exchange rate on disaggregation price inflation

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  • Husaini, Dzul Hadzwan
  • Lean, Hooi Hooi

Abstract

Maintaining price stability is crucial for meaningful economic growth. However, while policymakers tend to remove some energy incentives when the oil price decreases to moderate fiscal pressure, a decrease in oil price interacts with the exchange rate depreciation in the oil exporting country. This is the first study that examines the asymmetric impact of both oil price and exchange rate on the disaggregate price inflation in Indonesia, Malaysia, and Thailand. Given that each country has its own economic structure, the impact of oil price and exchange rate fluctuation on the price level may differ across the countries. We find that an increase in oil price has a greater impact on the producer price index (PPI) than the consumer price index (CPI) in all countries. However, a decrease in the oil price is only significant in reducing both CPI and PPI in Thailand. Moreover, an increase in the exchange rate (currency depreciation) is significant in causing an increase in both the CPI and PPI in all countries. However, a decrease in the exchange rate (currency appreciation) failed to reduce both the CPI and PPI in all countries. We recommend that policymakers continue their energy incentive programs, however, the distribution of the energy incentive should be improved to ensure that the benefit reaches the targeted group.

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  • Husaini, Dzul Hadzwan & Lean, Hooi Hooi, 2021. "Asymmetric impact of oil price and exchange rate on disaggregation price inflation," Resources Policy, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jrpoli:v:73:y:2021:i:c:s0301420721001896
    DOI: 10.1016/j.resourpol.2021.102175
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    3. Dr Jan Roan Neethling, 2022. "Analysing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa," GATR Journals jber231, Global Academy of Training and Research (GATR) Enterprise.
    4. Mirza, Nawazish & Naqvi, Bushra & Rizvi, Syed Kumail Abbas & Boubaker, Sabri, 2023. "Exchange rate pass-through and inflation targeting regime under energy price shocks," Energy Economics, Elsevier, vol. 124(C).
    5. Husaini, Dzul Hadzwan & Lean, Hooi Hooi & Puah, Chin-Hong & Affizzah, A.M. Dyg, 2023. "Energy subsidy reform and energy sustainability in Malaysia," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 913-927.
    6. Christina Anderl & Guglielmo Maria Caporale, 2023. "The Asymmetric Impact of Economic Policy and Oil Price Uncertainty on Inflation: Evidence from Developed and Emerging Economies," CESifo Working Paper Series 10276, CESifo.
    7. İbrahim Özmen & Şerife Özşahin, 2023. "Effects of global energy and price fluctuations on Turkey's inflation: new evidence," Economic Change and Restructuring, Springer, vol. 56(4), pages 2695-2728, August.
    8. Sarit Maitra & Vivek Mishra & Sukanya Kundu & Manav Chopra, 2023. "Econometric Model Using Arbitrage Pricing Theory and Quantile Regression to Estimate the Risk Factors Driving Crude Oil Returns," Papers 2309.13096, arXiv.org, revised Oct 2023.
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    More about this item

    Keywords

    Asymmetry; Inflation; Oil price; Exchange rate;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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