THE EFFECT OF FLUCTUATIONS IN FUEL PRICES ON INFLATION IN PAKISTAN

Abstract

The impact of inconstancy in fuel costs on inflation in Pakistan was studied on the small level monthly time series data from June 2003 to August 2018. In addition, forecast of oil costs for the succeeding sixty months has been presented graphically along with which Granger causality test was also performed. The Impulse Response Function (IRF) determined the effect of fluctuations of fuel prices on inflation and Vector Autoregressive VAR model was used to forecast the fuel prices. The study depicted that fuel (diesel, kerosene, and petrol) prices could cause consumer price index (CPI) in Pakistan. The rise in Petrol prices turned out to be the major cause of inflation, whereas diesel and kerosene costs did not show that abundant result