An Econometric analysis of the relationship between oil price change and inflation dynamics in Kenya
The purpose of this study was to analyse the relat ionship between global oil price and inflation in Kenya. The specifi c objective of the study was to investigate the . impact of fluctuations of global oil price on Kenyan inflation. This study employed the use of monthly data for all the variables for the period 2005 to 2015, which was split into two: Pre-Energy Regulatory Commission (ERC) and Post-ERC. The study conducted Stationarity tests before using a Vector Autoregressive (VAR) model to estimate the data. The analysis showed that during the first sample period of 2005 to ,2010 (Pre-ERq, changes to the Brent price had no impact on inflation in Kenya. However, during the second sample period of 2011 to 2015 (Post-ERC), the Brent price was seen to impact inflation positively. This meant that any changes to the global price would result in an increase in local inflation, owing to the fact that the ERC derives local oil prices from the intemational oil prices . To mitigate this effect , the paper recommended that the ERC should take up more effective price controls.