Oil and Natural Gas Prices and CPI Inflation in G20 Economies: A Cross-Country Empirical Analysis, 2018–2024

The Great Inflation Hunt: Why Your Wallet Feels the Heat

Imagine the global economy as a giant, complex machine, like a massive amusement park ride. To keep the ride moving, you need fuel. In our world, that fuel is mostly oil and natural gas. They power our cars, heat our homes, and help make everything from plastic toys to the bread in your sandwich. Now, imagine the price of that fuel suddenly spikes. What happens? The cost of running the ride goes up, so the ticket price for everyone increases. This is the basic idea behind inflation: when the cost of making and moving things goes up, the prices we pay for those things go up, too.

For decades, economists have known that when oil prices jump, prices at the store tend to follow. It's like a domino effect: expensive oil means expensive gas for your car, which means expensive trucking for groceries, which means expensive groceries. But recently, something new happened. While oil was acting up, natural gas prices also went crazy, especially in Europe. This raised a big question for the scientists who study money and prices: Is oil still the main villain causing prices to rise everywhere, or has natural gas taken over the spotlight? And does this happen the same way in every country, or does it depend on where you live? Understanding this matters because if central banks (the groups that control interest rates) don't know which fuel is driving up prices, they might try to fix the problem with the wrong tools.

The Big Map: Oil vs. Gas in 18 Countries

This paper is like a detective story where the investigators, Nurkhodzha Akbulayev, Asmar Maharramova, and Türkan Dadashova, set out to map out exactly how oil and natural gas prices affect the cost of living in 18 of the world's biggest economies (the G20). They looked at data from June 2018 to May 2024, a period that included the pandemic, the recovery, and the massive energy crisis caused by the war in Ukraine. They didn't just guess; they used math to see if the prices of oil and gas were "dancing" together with the Consumer Price Index (CPI), which is a fancy scorecard that tracks how much prices change for everyday items.

The Main Discovery: Oil is the Universal King, Gas is the Local Star

The researchers found a clear pattern, and it's a bit like a game of musical chairs. Oil prices were the consistent winner. In 12 out of the 14 countries they could run full math tests on, oil prices were a strong, positive predictor of inflation. When oil went up, prices went up. This happened in places as different as the United States, Japan, and Germany. The math showed that for every unit oil prices rose, inflation ticked up a little bit everywhere. It's as if oil is the "main character" in the story of inflation for almost the entire world.

Natural gas, however, was a different story. It wasn't a global superstar. Instead, it was a "local hero." The paper found that natural gas prices only had a strong, significant effect on inflation in a small, specific group of countries: Italy, Mexico, Argentina, and Turkey.

• Italy was the most dramatic example. The math showed that natural gas was actually more important than oil for Italy's inflation. This makes sense because Italy relies heavily on gas to heat homes and power its electricity. When gas prices jumped there, the cost of living jumped right with it.
• Mexico also showed a strong link between gas prices and inflation.
• Argentina and Turkey were the weird outliers. In these two countries, the math showed a strange, negative link: when gas prices went up, the model suggested inflation might go down (or at least, the gas price variable acted strangely). The authors explain this isn't because gas magically cools prices. Instead, they suspect it's because these two countries had huge currency problems (their money lost value fast) at the same time. The math got confused because oil and gas prices move together, and the crashing currency made the numbers look messy.

The "No-Link" Zone

The paper also tells us where the link didn't work. In countries like China, South Korea, Canada, and India, the simple math didn't show a strong, immediate connection between energy prices and inflation. The authors are careful to say this doesn't mean energy doesn't matter there. It just means that in these specific places, other things (like government price controls or different types of fuel) might be blocking the direct link, or the effect takes longer to show up. For example, China and South Korea have strict rules on fuel prices, which acts like a dam, stopping the full force of global price spikes from hitting the consumer immediately.

How Sure Are They?

The authors are very honest about what they know and what they don't. They describe their work as a "systematic descriptive mapping." Think of it like drawing a very detailed map of a forest based on a walk through it. They can tell you exactly where the trees are and how tall they look right now, but they haven't dug up the roots to see exactly how the soil works.

• They measured the connections using standard math (regression) and found that oil is significant in 12 countries and gas is significant in 4.
• They suggest that the weird results in Argentina and Turkey are likely due to currency crashes, not because gas lowers prices.
• They rule out the idea that this is a "solved" problem. They explicitly state that their study is a starting point. They didn't prove that oil causes inflation in a deep, unchangeable way; they just showed that they move together very closely in the short term. They admit that to get the full "cause-and-effect" story, future scientists need to do more complex tests, like checking if the data is stable over time and adding more variables like exchange rates.

The Takeaway

So, what's the final verdict? If you want to know why prices are rising in most of the world, look at oil. It's the big, global driver. But if you are in Italy or Mexico, you also need to keep a very close eye on natural gas, because for them, it's just as important. And if you are in a country with strict price controls or a crashing currency, the relationship is more complicated and might look different on the surface. The paper doesn't give a magic formula to stop inflation, but it gives policymakers a better map: don't treat every country the same. What works for the US might not work for Italy, and what works for oil might not work for gas.