Review of Economics and Development Studies, Vol. 7 (2) 2021, 177-185 177 Impact of Exchange Rate and Oil Prices on Inflation in Pakistan a Tahira Bano Qasim, b Hina Ali, c Alina Baig, d Maria Shams Khakwani a Assistant Professor, Department of Statistics, The Women University Multan, Pakistan. b Assistant Professor, Department of Economics, The Women University Multan, Pakistan. Email: hinaali@wum.edu.pk c Scholar, Department of Statistics, The Women University Multan, Pakistan. d Lecturer, Institute of Management Sciences, The Women University Multan, Pakistan. ARTICLE DETAILS ABSTRACT History: Accepted 25 April 2021 Available Online June 2021 This study investigates the impact of Exchange Rate (Rupees Vs US $) and oil prices (Pak. Petroleum) and on the inflation rate in Pakistan by applying the Co-Integration technique to the monthly data for all the three series ranging from January 2004 to January 2019. Unit root testing results provide strong statistical evidence for each of the series to be non-stationary at the level and stationary at first difference. Co- integration testing results confirm the existence of Cointegration among the selected time series. Moreover, the empirical results of the regression of inflation on the exchange rate and oil price also lead to conclude that both the series have a strong statistical significant impact on inflation in Pakistan. © 2021 The authors. Published by SPCRD Global Publishing. This is an open access article under the Creative Commons Attribution- NonCommercial 4.0 Keywords: Inflation, Co-Integration, Stationarity, Unit Root JEL Classification: P24, C52 DOI: 10.47067/reads.v7i2.349 Corresponding author’s email address: hinaali@wum.edu.pk 1. Introduction Inflation refers to the persistent increase in the prices of goods and a constant decrease in the value of money. Due to Inflation, the increase in prices of goods causes an increase in daily life expenditure and a decrease in the saving level. As a result, the investments decrease which disturbs any country’s economic system. Under such a situation, inflation becomes an observable fact which leads to attracting the attention of researchers economists, and policymakers. Many types of research in the literature show that oil prices highly influence the economy of any country so changes in oil prices is also a challenging task for policymakers, economists, and business holders for the last four decades. Fluctuations in inflation are related to the fluctuation in petroleum prices in the same directions. Because the oil used in daily life from transporting and home fueling to the production of many goods. An increase in the oil prices increases the cost of production which increases the consumer Price income(CPI) and an increase in inflation are likely to occur. Under such circumstances, it is very important to know the extent of the empirical relation between petroleum price changes and inflation for policymakers to conduct effective monetary policies. The business