© MAY 2020 | IRE Journals | Volume 3 Issue 11 | ISSN: 2456-8880 IRE 1702312 ICONIC RESEARCH AND ENGINEERING JOURNALS 163 Do Oil Shocks Matters For The Inflation Rate In Bangladesh? MOHAMMAD RASELAR RAHMAN 1 , MD. SHADDAM HOSSAIN 2 , MD. MAZNUR RAHMAN 3 , DILRUBA YESMIN SMRITY 4 , *LITON CHANDRA VOUMIK 5 1, 2, 3, 4, 5 Department of Economics, Noakhali Science and Technology University, Bangladesh * Corresponding Author Abstract-  Background/ Objectives: In recent years oil prices have fluctuated extremely. Bangladesh is an oil-importing country and it has strong volatility of oil prices impacts on its economy. Especially oil shocks have a crucial role on several macroeconomic indicators mainly inflation rates in Bangladesh. This paper estimates the effects of oil price changes on inflation for Bangladesh.  Methods/ Statistical analysis: In this paper, we use the co-integration approach and vector error correction model to investigate the oil shocks impacts on the inflation rate in Bangladesh. Time series yearly relevant variables from different sources are introduced on the model for the analysis. The Stata and R-Studio software were applied in this paper.  Findings: The result shows that there is a negative relation between the consumer price index in Bangladesh and global oil prices. This is contradicted to the normal belief but the short-run adjustment coefficient c1 is statistically significant and the sign of the coefficient is positive which means that the long-run equilibrium is not stable when there are any shocks in the short-run. For these results, the proper initiative should take to subsides on the oil price to the domestic market to make inflation consumer- friendly. Another finding from the control variable broad money supply which has positively influenced the consumer price index and statistically significant.  Improvements/Applications: This finding will encourage policymakers, monetary authorities, and academicians to formulate more supportive policies and strategies to respond to oil price shocks more precisely. Indexed Terms- Global oil price, Inflation, Consumer price index, Unit root, Co-integration, VECM. I. INTRODUCTION Oil price fluctuation does impact badly on inflation cause the maximum world production of consumer goods is directly or indirectly involved in oil. Such a change is price can cause a greater impact on the market mechanism. It can change the price of the product. The price stability of the national economy is one of the key matters of national well-being. Maintaining various market price unpredictability for goods and services allows getting constancy in output and stock management. The further production process is at risk when the price volatility rate is high. In most cases central and reserve banks, targeting inflation rate through different transmission channels of monetary policy such as interest rate policy to affect the real sector. In some countries, most often emerging ones or those being transitory, cost inflation prevails. In this case, various shocks affect consumer prices rate. These are changes in budget spending, dependence on the imported goods and services, tax and fiscal policy, dependence on the currency rate, monopolistic or oligopolistic (including cartels) market structure make the national economy inelastic and at the same time sensitive to negative shocks in costs. Such disorganization of the market economy may be even deepened when the country largely depends on imported oil. Oil has diverse uses such as transportation, energy production, consumer good production, etc. So there is a possibility of an oil price