Impact of Crude Oil Price Fluctuations on Consumer Price Index in Kenya

Yodah, Walter; Ouma, Chrisphine; Machel, Graca; Ajwang, Jeanette

Advanced Research in Economics and Business Strategy Journal
Volume 5, Numéro 1, Pages 07-25
2024-06-30

Impact Of Crude Oil Price Fluctuations On Consumer Price Index In Kenya

Authors : Yodah Walter . Ouma Chrisphine . Machel Graca . Ajwang Jeanette .

Abstract

ABSTRACT: This study tries to determine the impact of crude oil price fluctuations on Consumer Price Index, CPI in Kenya using the monthly data from 2012M1-2023M3. The Augmented Dickey-Fuller unit root test used in the analysis to test for stationarity for the series indicated that CPI and major types of Crude oil (Kerosene, Diesel, and Super petrol) were non-stationary. The empirical analysis is carried out using cointegration by applying Johansen’s multivariate approach which reveals that not more than one cointegrating relationship holds among oil prices and CPI in Kenya. The analysis using VECM further shows that the series deviation from equilibrium to disequilibrium cannot be corrected back to equilibrium in the long run. The impulse response functions reveal that oil price shocks positively affects CPI in Kenya. As expected, the forecasted values continue to exhibit an increasing trend in the major oil type prices and CPI values in Kenya. The Jacque-Bera test for normality, ARCH-LM test for Homoscedasticity, and Portmanteau test for serial correlation were used to test for the adequacy of the Model.