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Inflation effects of oil and gas prices in the UK: Symmetries and asymmetries

Author

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  • Abubakar, Attahir B.
  • Karimu, Suale
  • Mamman, Suleiman O.

Abstract

The United Kingdom is among the countries experiencing a cost-of-living crisis believed to be influenced, at least in part, by the dynamics of the international oil and gas markets. To this end, this study aims to achieve to achieve two objectives. Firstly, the dynamic association between the UK's inflation and oil and gas prices is examined. Further, the study examines whether the response of the UK's inflation to energy price dynamics is (a)symmetric. This study adopts wavelet coherency to determine the dynamic co-movement between energy prices and inflation. In addition, the dynamic simulated autoregressive distributed lag model (DS-ARDL) is used to examine the dynamic response of inflation to energy price changes. The estimation results reveal a symmetric response of inflation to gas price shocks. Further, the response of inflation to oil price shocks is asymmetric. Interestingly, the effect of gas price dynamics passes more strongly to inflation than to oil price dynamics. These findings suggest that a more diversified energy mix could help prevent substantial energy price pass-through to inflationary pressures.

Suggested Citation

  • Abubakar, Attahir B. & Karimu, Suale & Mamman, Suleiman O., 2024. "Inflation effects of oil and gas prices in the UK: Symmetries and asymmetries," Utilities Policy, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:juipol:v:90:y:2024:i:c:s0957178724000961
    DOI: 10.1016/j.jup.2024.101803
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    More about this item

    Keywords

    Inflation; Energy markets; Energy prices; Gas price; Oil price; United Kingdom; Cost of living; UK energy market;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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