The Impact of International Oil Prices on Consumer Prices: Evidence from a VAR Model

This study examines possible impacts of crude oil price (OP) on consumer price index (CPI) among three oil exchange markets and four Asian countries with different economic development levels over the period January 1999 to June 2008. A time-series vector autoregression (VAR) model is applied in empirical estimation. The estimated results show that oil prices changes (COPs) have significant effects on changes of CPIs (CCPIs) in the short run for all countries considered. There are long-run causality effects of COPs on CCPIs for countries with relatively larger economic scale. The one way COP-CCPI relationship is less significant for more developed countries. Moreover, the divergent relationships of Dubai COP to CCPIs of Japan, Singapore, and India as well as Brent COP to CCPI of Japan are meaningless in the long run.