Unraveling the Nexus of Economic Factors: Analyzing the Impact of Trade, Energy Consumption, Electricity Generation, Exchange Rate, and Urban Population on Consumer Price Index in European countries

Abstract

The dynamics of consumer price index (CPI) and its influencing factors lie at the heart of economic stability and growth. In this comprehensive research paper, we investigate the multifaceted relationship between consumer price index (CPI) and a set of critical independent variables, including trade (T), primary energy consumption (PEC), electricity generation (EG), exchange rate (ER), and urban population (UP). This research examines a cross-sectional sample of 20 European countries using panel ordinary OLS regression and fixed- and random-effects models for the period of 2000–2020. The findings of this research suggest that there is a notable inverse relationship between Primary Energy Consumption and CPI. The coefficient associated with Primary Energy Consumption carries a negative sign and demonstrates statistical significance at the 5% level and urban population, exchange rate and Electricity generation show positive significant impact on Inflation, while trade does not have any significant impact on inflation.