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Fuelling Future Prices: Oil Price and Global Inflation


  • Carlos Medel


Several years ago, the entire world experienced how fast and damaging certain inflationary shocks can be transmitted across seemingly uncorrelated countries. Despite the analysis of fuzzy transmission mechanisms, a direct inflationary transmission channel through global commodity prices shocks has been always of interest to policymakers—especially those concerned on imported inflation. The majority of international-to-domestic pass-through price measures are obviously insample estimations. However, in this article I analyse to what extent either global inflation or the Brent oil price provides more valuable information for future domestic inflation rates. I compare ten different multihorizon forecasts coming from a family of univariate time-series models for 53 countries. Each of these ten models is augmented with an exogenous variable—either and ad-hoc global inflation factor or Brent oil price. Overall, in almost 90% of the countries the use of any of these two variables improves the forecasting accuracy compared to the case without any exogenous factor. In 74 and 60% of the countries the global-inflation-based forecast outperforms oil-based forecast at 1- and 12-months-ahead. Twenty-four-months ahead the oil-based-forecast outperforms in 62% of the countries. Major predictive gains are observed for European OECD and Caribbean countries.

Suggested Citation

  • Carlos Medel, 2015. "Fuelling Future Prices: Oil Price and Global Inflation," Working Papers Central Bank of Chile 770, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:770

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    References listed on IDEAS

    1. Friedrich, Christian, 2016. "Global inflation dynamics in the post-crisis period: What explains the puzzles?," Economics Letters, Elsevier, vol. 142(C), pages 31-34.
    2. Gao, Liping & Kim, Hyeongwoo & Saba, Richard, 2013. "How Does the Oil Price Shock Affect Consumers?," MPRA Paper 49565, University Library of Munich, Germany.
    3. Gao, Liping & Kim, Hyeongwoo & Saba, Richard, 2014. "How do oil price shocks affect consumer prices?," Energy Economics, Elsevier, vol. 45(C), pages 313-323.
    4. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
    5. Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, vol. 31(1), pages 126-133, January.
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    Cited by:

    1. Medel, Carlos A., 2015. "Geopolitical Tensions, OPEC News, and Oil Price: A Granger Causality Analysis," MPRA Paper 65667, University Library of Munich, Germany.
    2. Carlos A. Medel, 2016. "Un análisis de la capacidad predictiva del precio del cobre sobre la inflación global," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(2), pages 128-153, August.

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