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Publication Date

10-23-2016

Abstract

World oil price is a momentous determinant of global economic performance. In most cases, when oil prices skyrockets, it leads to a transfer of income from importing countries to exporting countries through trade shifts. The link between oil and inflation is mostly seen as being correlational. The direct relationship between oil and inflation was evident in the 1970’s nevertheless this relationship started to deteriorate after the 1980’s. Quite a cornucopia of researchers have made relentless inquiry on the macroeconomics impact of world oil price shocks and hikes on economic growth and consumer price inflation on importing countries. Also, an infinitesimal analyses have tackled the impact of the world oil price on inflation. For many developing countries, oil price hikes over the last few years has warranted the need for structural reforms of the domestic petroleum pricing system. The role of economic policy in attenuating the potential adverse economic and social impact of world oil prices in Ghana cannot be overemphasized. The causes of inflation in Ghana has precipitated vehement canvassing among policy makers. Some analysts have ascribed that the causes of inflation emanate from the consumer goods market, with others repudiating the consumer goods market argument, ascribing it as namby-pamby and stating that inflation in Ghana is rather more from the money market. Another group of scholars maintain that inflation in Ghana is imputed to be from the exogenous variable (world oil price). The debate lingers on and in Ghana the shocks to prices are mixed and dynamic. This paper, through quantitative review and analysis attempts to determine the impact of world oil price on Ghana’s inflation, expound on the factors that drive Ghana’s inflation and suggest perpetual remedies to Ghana’s inflation. This paper employed multiple OLS regression, correlation matrix and linear regression model and found that world oil price is correlational to Ghana’s inflation. Other factors like interest rates (Bank of Ghana policy rate) and exchange rates also strongly proved to drive Ghana’s inflation.

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