Exploring dynamic interactions between energy prices and CPI

This paper aims to shed light on the dynamic interactions between the US Consumer Price Index and the Bureau of Labor Statistics Producer Price Index component for fuels and related products and power, using threshold cointegration together with parametric and non-parametric causality tests. This integrated approach not only validates findings across methods but also reveals more nuanced short-term dynamics than any single test could capture. The empirical results show that, in the long-run, disequilibrium states characterized as ‘‘turbulent’’ are mainly detected before 2000. On the other hand, ‘‘normal’’ regimes appear particularly after 2000. In the short-run, we observe a significant feedback relationship in the pre-2000 period, while a tendency of energy prices to cause the Consumer Price Index dominates in the post-2000 sample. This behavior highlights that the transmission of energy price shocks to the Consumer Price Index is asymmetric and evolves over time, providing useful insights for policymakers and market participants.