Impact of External Shocks and Exchange Rate Movements on Retail and Wholesale Prices in Pakistan: A Granular Level Analysis

doi: https://doi.org/10.35536/lje.2025.v30.i1.a1

Syed Kalim Hyder Bukhari, Umar Mashhood and Waqas Ahmed



28
Received
March
2025
20
Revised
May
2025
01
Accepted
August
2025
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Abstract

This study assesses the impact of external shocks and exchange rate movements on prices. The main benefit of this granular analysis is its ability to capture heterogeneous impacts across different products and geographical areas, which is often overlooked in macro-level studies. The model includes four global shocks: global inflation, US industrial production, global food inflation, and global oil prices. Regarding domestic factors, exchange rate, inflation expectations, and inflation persistence are considered. The dependent variables are prices, including 356 items from the Urban Consumer Price Index (CPI), 244 items from the Rural CPI, and 110 items from the Wholesale Price Index (WPI), all measured monthly. The results show that global food prices have the most significant influence on both national CPI and WPI inflation, while global oil prices have the least impact on consumer and wholesale inflation in Pakistan. Domestically, the exchange rate shows the highest pass-through effect on inflation, with inflation expectations and persistence having comparatively lower impacts.

Keywords

Exchange Rate; Global Shocks; Oil Price Shocks; Inflation; Prices; Pass-Through

Citation:

Bukhari, S. K. H., Mashood, U., & Ahmed, W. (2025). Impact of External Shocks and Exchange Rate Movements on Retail and Wholesale Prices in Pakistan: A Granular Level Analysis. The Lahore Journal of Economics, 30 (1), 1–23.

https://doi.org/10.35536/lje.2025.v30.i1.a1