An Analysis Of The Relationship Between Oil Prices And Inflation In Oil-Dependent Economies: With Special Reference To Oman

Abstract

This research aims to take into account the association between inflation and oil prices within an oil-dependent economy. Oil is considered as one of the essential commodities in the world, and its price has a significant influence on the global economy. Moreover, the oil-dependent economies are heavily based on oil exports for their economic growth, which makes them vulnerable to fluctuations in oil prices. Hence to understand the relationship between variables, the research applied panel data analysis of different oil-dependent economies for the duration of 20 years (2000 to 2020). The result found a significant and strong correlation amid the upsurge in inflation rate and oil price. This shows that a positive relationship is present amid the dependent and independent variables. The findings revealed that 10% rise in oil prices mainly causes an average increase of 0.5% in inflation in economies. The study recommends that oil price has a positive influence in oil-dependent economies and policymakers should take this relationship in their consideration while establishing the monetary policies.