An Empirical Note on the Impact of the Price of Imported Crude Oil on Inflation in the United Kingdom

Document Type

Article

Publication Date

9-1-2002

Publication Title

Journal of American Academy of Business

Abstract

This study empirically investigates whether the assumption by the Bank of England that rising prices of imported crude oil lead to domestic inflation in the United Kingdom has had validity. In a model where real GDP growth and money stock growth are both all allowed for, empirical estimation reveals compelling evidence for the validity of this assumption. In particular, the greater the percentage increase in imported crude oil prices, the greater the domestic inflation rate. In addition, oil shocks involving imported crude oil price hikes of 40 percent or more in a given year further elevate the domestic inflation rate.

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