Changing Oil Prices, Exchange Rates and its Impact on Inflation in Pakistan

Purpose: The key objective of the analysis is to explore the impact of oil prices and exchange rates on the inflation rate in Pakistan by using annual time-series data from the period 1980 to 2020. Design/Methodology/Approach: The augmented Dickey-Fuller test, bound test approach, and ARDL model are applied to achieve the objectives of the study. Findings: It is found that the crude oil prices and real effective exchange rate are found to be significant factors that influence the inflation rate in Pakistan. The other findings explored that money supply, exports, and gross fixed capital formation are positively related to the inflation rate. Implications/Originality: The author’s recommended that policymakers should take steps to control the inflation rate by regulating the fiscal and monetary policy measures in the right direction.