Inflationary and distributional effects of fossil energy price fluctuation on the Chinese economy

This study uses a non-competitive input-output model with monthly empirical data from January 2012 to November 2018 to evaluate the inflationary and distributional effects of fossil energy price fluctuation on the Chinese economy. Results show that the average monthly responses of consumer price index, producer price index, and gross domestic product deflator to fossil energy price change are 0.64%, 1.95%, and 1.46%, respectively. The inflationary pressures resulted from the price fluctuation of different energy types and sources are identified, which facilitates policymaking targeting different driving factors of inflation. Opposite progressivity is observed in terms of distributional effect measured by the expenditure changes of residents at different income levels, i.e., the coal price change leads to regressive impact while the crude oil price change leads to progressive one. Policy implications for China's energy market reform and energy tax design have been put forward based on the results of this study.