We consider the
impact of oil shocks on consumer transportation prices in an energy constrained
small open economy using monthly data from Bangladesh between July 2003 and
December 2020. Within a multivariate modelling approach, we find that higher
availability of oil reduces inflationary pressure in transportation, and while we observe that prices of all other goods and services impart a positive pressure,
the supply of oil inversely influences transportation prices. Estimating the
variance of the inflation to find that both long and short run volatility of
transportation prices are bounded and mean reverting. In addition, the impact
of the volatility is symmetric, implying similar persistence of both positive
and negative shocks.
Transport inflation in Bangladesh, like other small
oil energy constrained countries, is usually addressed through increasing the
imports of oil. However, as the community of nations adopt renewable energy
strategies in the face of environmental imperatives, Bangladesh will likely follow
the trend. This presents an opportunity to address present
oil dependency and transport inflation with policies that explicitly
consider the long run renewable energy future.
