The Effects of Energy Prices on the Inflation Rate of Western Balkan Countries

The Western Balkan countries have experienced significant economic fluctuations in recent years. Among the primary contributors to these fluctuations is the volatility of energy prices. Energy, being a fundamental input in both production and consumption, has a direct and often disproportionate impact on inflation trends. Therefore, this study analyzes how energy prices have contributed to inflation in the Western Balkan (WB) countries in the period 2002 and 2022. The panel regression models, such as the fixed and random effects model as well as the Least Square Dummy Variables (LSDV), have been employed. The results reveal that there is a positive and significant relationship between energy prices and inflation. Variations in energy dependency, domestic energy policies, and economic structures lead to different inflationary responses across the Western Balkan countries. Countries with higher dependence on imported energy tend to experience more pronounced inflationary pressures.