An examination of the relationship between oil prices and inflation: The case of the EU

Theories about inflation continue to maintain its importance as an issue that does not fall on the agenda of economic actors even in today's era. The main purpose of this study is to analyze the effects of oil prices on inflation in EU-27 countries and how these effects change over time. Most of the studies in the literature examine developed and developing countries, OECD countries and OPEC countries. However, studies for EU-27 countries are limited. Therefore, it is thought that this study can contribute to filling an important gap in the literature. In the study, the effect of oil prices on inflation in the 1993-2021 period was examined using the panel regression model for EU-27 countries. In this direction, the consumer price index was used to represent inflation in the study. In the study, in accordance with the assumptions of the least squares method, looking at the panel from a holistic perspective using the Driscoll-Krayy (1998) resistant standard errors estimator, the situation of the countries within the panel was compared using the Pooled CCE (CCEP) estimator method. The results obtained indicate that the effect of the changes in oil prices over time on inflation is meaningless on the EU-27 countries as a whole in the analysis period; On the other hand, it shows that the inflationary effect on a unit basis differs from country to country. When the literature is examined, it is difficult to say that the effect of oil price on inflation in various countries or country groups has a clear direction. Although a significant effect was found predominantly in the studies, there are also studies that could not detect a significant statistical relationship between the two variables, as in this study.