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Article
ASSESSMENT OF EFFECTS OF RELATIVE PRICE VARIABILITY ON INFLATION
Saghir Pervaiz Ghauri, Rizwan Raheem Ahmed, Muhammad Farooq Arby, Raimonda Martinkute-Kauliene
ABSTRACT. The aspiration of the undertaken article is to explore the effect of relative price variability (RPV) on the inflation rate by estimating the model of fixed effects regression by employing the panel data of prices of 35 cities of Pakistan. We have followed the Ball - Mankiw (1995) approach, which has considered the dissemination of changes in relative price as the supply shocks and reflects on a theory of inflation on the supply side. Our results show that the inflation rate, both food, and non-food inflation, is significantly and positively affected by relative price variability. The results imply that supply-side factors, as exhibited in the dispersion of relative price changes, are robust determinants of the inflation rate .
KEYWORDS: inflation rate, supply shocks, relative price variability, food, and non-food items.
JEL classification: C4, D12, E6, E31, P24.