An Investigation on the Impacts of Fuel Carrier Price on the Consumer Price Inflation in Iran

Abstract

Introduction: Oil is one of the primary commodities of all countries globally and is, in essence, the energy base of all that we know as transportation. Therefore, price fluctuations of derivatives, especially fuel and oil derivatives, are the policymakers’ main concerns because they can cause serious problems, such as inflation in commodity prices. Objective: The impact of fuel carriers’ prices on the consumer price index remains a subject of debate and research. This paper aims to develop a model to define the inflation regime in Iran and then investigate the impact of gasoline and diesel price on the total inflation rate. Method: In this study, using the central bank time series and available data on energy balance and World Bank data banks, a non-linear distributed online delay regression model is developed to analyze the relationship between fuel price and essential commodity inflation. Results: The results show that there is an impact of gasoline prices on inflation. It does not have much effect in the long term, but diesel can somewhat influence raising prices, which can exacerbate poverty in the community that needs special attention. Conclusion: It was also found that increase in diesel’s price is harmful to the economy because it can stimulate inflation in the long term. However, in the short term, diesel does not cause any significant inflation in the prices. While gasoline prices can have many short-term social effects, this paper suggests that the Iranian government's control of diesel fuel prices prevents long-term inflation and inflation in consumer price rate.