The Impact of Petrol Price Changes on Economic Welfare in Tanzania: A Time Series Analysis (2000–2024)

Abstract

The study investigates the impact of petrol price changes on economic welfare in Tanzania, focusing on two key indicators: the Consumer Price Index (CPI) and the poverty headcount ratio (HCR). The study employed a quantitative time-series approach using monthly data spanning from 2000 to 2024. Data were obtained from EWURA for petrol prices and National Bureau of Statistics (NBS) for CPI and poverty data. To model petrol price volatility, the study applied ARCH and GARCH models. Additionally, regression models, including log-log linear specifications, were used to assess the relationship between petrol prices and macroeconomic indicators. In this study STATA 16.0 was used to analyse the data. The findings reveal significant volatility clustering in petrol prices, which is best captured by the ARCH (1), GARCH (1) model. A key result indicates that a 1% increase in petrol prices leads to a 0.96% increase in CPI, highlighting a strong inflationary effect. Also, the findings reveal that both current and lagged petrol prices significantly influence the Poverty Headcount Ratio explained by 32.9% and 24.45% respectively. The study concludes that petrol price fluctuations have considerable implications for inflation and poverty trends in Tanzania. The study recommends strengthening price stabilization mechanisms, enhancing macroeconomic resilience, and expanding targeted social protection programs. These findings contribute to the growing body of literature on energy economics and offer practical insights for Tanzanian policymakers in formulating sustainable fuel and poverty alleviation policies.