International oil shocks and household consumption in China

We investigate the impacts that oil price shocks have on residential consumption in China. While it is well understood that oil prices affect consumption in a multitude of ways, the timing and directness of these effects on specific consumption categories is not clear. We demonstrate that the most immediate and direct effect passes through transportation consumption, as might be expected. But we also show that significant effects pass through consumption in other sectors—including “food and clothes”, “medical expenditure”, and other general “living expenditure”—with less immediacy. Given the results, particularly observed asymmetries with respect to rises and falls in international oil prices, we discuss some implications for future adjustments to domestic price policies, in particular the case for removal of domestic price regulation.