International Food and Oil Price Pass-through and Inflation Dynamics in Algeria: Evidence from VAR Models and Wavelet Coherence Analysis

Fatih Chellai
Statistika, 105(3): 318–332
https://doi.org/10.54694/stat.2024.68

Abstract
This study examines how international oil and food prices affected domestic inflation in Algeria from 1994 to 2022. Using advanced time-series methods and spectral analysis, we provide updated evidence on how global price shocks influence Algeria's consumer prices. The results from vector autoregression (VAR) models with structural breaks show that Algeria’s inflation is strongly influenced by external supply-side factors, particularly food prices, while exchange rate pass-through and domestic demand pressures remain weak. Wavelet coherence analysis highlights how the relationship between global and domestic prices changes over time, with strong short-term connections but weaker long-term ones. Our findings reveal Algeria’s high exposure to imported inflation due to its dependence on oil and food imports, though recent institutional reforms have created more room for stabilization policies. This study fills gaps in the literature by exploring price transmission dynamics during major global shocks, including the COVID-19 pandemic, and offers guidance on managing inflation risks in a volatile global economy.

Keywords
Price transmission, inflation, international commodity prices, Vector Auto-regression (VAR) models