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Research Article

Pass-through of oil prices to Brazilian inflation: An analysis between 2014 and 2023

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Article: 2360460 | Published online: 04 Jun 2024
 

ABSTRACT

The price of fuels, and consequently, the price of oil, is one of the elements of historical relevance for the general price level that the Brazilian population faces, given the country’s dependency on the road transportation mode for product distribution and the potential ripple effects that the oil price naturally exerts on other sectors of the economy. Therefore, the aim of the present study is to quantify the influence of oil prices on the overall price index of the Brazilian economy for the period between January 2014 and May 2023. To achieve this objective, a model based on a hybrid New Keynesian Phillips curve was constructed, and the estimation was performed using Structural Vector Error Correction (SVEC) models. As a result, we find that, although oil prices are not the most significant drivers of inflation, their influence is present, positive, and persists for a considerable number of periods.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 G7 is the group that comprises the seven most industrialized countries in the world (Germany, Canada, the United States, France, Italy, Japan and the United Kingdom).

2 It is important to emphasize that the criterion used to select the maximum lag (pmax) for the variables in the model was the one proposed by Schwert (1989), where pint12T1001/4max, with T being the number of observations. Hence, since all the series used in this study have 74 observations, a maximum of 12 lag was set for them.

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