Measuring the Impact of Petroleum Products on Inflation in Pakistan (1991-2012): A Statistical Approach

Abstract

This study focuses on finding the long run relationship between different income group based index numbers, i.e. lower, higher and combined/average income groups with that of petroleum products prices, namely petrol and high speed diesel(hsd), and estimation of an equation to investigate the effect of petrol and hsd prices on different income groups and to asses which income group is affected more by increase in prices of petrol or by hsd for the period 1991-2012.Different statistical tests were used to check the stationarity of the data. Correlogram, Augmented Dickey Fuller Test and Phillips-Perron test were used to assess the nature of stationarity after which Johansen’s cointegration test is used to assess the long run equilibrium relation. The long run cointegration equation helps in assessing the strength of petrol and hsd on increasing the consumer price index for different income groups. After applying the test, it is found that for lower income group hsd causes more change in the index number than that of petrol prices while for higher income group families the case was reverse. Whereas for combined income group high speed diesel revealed more changes than that of petrol.

Keywords: Inflation, High Speed Diesel, Time Series Analysis, Petroleum Product, Group