Exchange Rates, Energy, and Inflation: APEC Insights from Panel Data Analysis
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Universiti Malaysia Sarawak (UNIMAS)
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This research analyzes how energy trade dynamics, alongside exchange rates and geopolitical events, combined with economic uncertainty, money supply, and interest rates, affect the Consumer Price Index (CPI) in non-ASEAN APEC member countries. Using panel data analysis and time series econometrics, the study examines interaction effects among these variables to capture both direct and indirect influences on inflation across economies such as Japan, South Korea, and the United States. The findings reveal that energy trade exerts a significant impact on CPI, particularly in energy-importing countries, and this effect is magnified under volatile exchange rate conditions. The interaction between energy trade and exchange rates (ET*EX) is found to significantly contribute to inflationary pressures, underscoring the vulnerability of open economies to global energy shocks and currency fluctuations. Additionally, geopolitical tensions and economic uncertainty were shown to heighten CPI instability, while expansionary monetary conditions, such as increased money supply and lower interest rates, further amplified inflation in certain cases. These results suggest the need for coordinated energy and monetary policy, especially in economies with high energy dependency and exchange rate sensitivity. The research provides strategic insights for APEC policymakers to strengthen economic resilience and develop integrated inflation management frameworks responsive to both external shocks and domestic vulnerabilities.