Oil-price, inflation pass-through: Are there some known, unknowns?
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The study revisits the oil price and inflation nexus in 18 emerging market economies. We bring new evidence by studying this relationship using the disaggregated inflation data, (the headline inflation and the four major inflation sub-groups including core inflation, food inflation, fuel inflation and housing inflation). Using mixed frequency data sampling (MIDAS) regression, the study explains the oil price shock transmission mechanism, where food group plays an important role in translating the immediate incidence of the shock. Our out-of-sample forecasts strongly support the prediction power of MIDAS over VEC model, for headline CPI inflation and CPI subgroups inflation.
Abstract
The study revisits the oil price and inflation nexus in 18 emerging market economies. We bring new evidence by studying this relationship using the disaggregated inflation data, (the headline inflation and the four major inflation sub-groups including core inflation, food inflation, fuel inflation and housing inflation). Using mixed frequency data sampling (MIDAS) regression, the study explains the oil price shock transmission mechanism, where food group plays an important role in translating the immediate incidence of the shock. Our out-of-sample forecasts strongly support the prediction power of MIDAS over VEC model, for headline CPI inflation and CPI subgroups inflation.
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