Exchange rate volatility will affect changes in price level. This paper confirms that a
change in the exchange rate inevitably affects inflation. To verify this phenomenon, the model
in this paper used retail oil price as an explanatory variable for external supply shocks to
changes in the Consumer Price Index. Imported prices in dollars are representative for domestic
costs. The manufacturing production index indicates the supply and demand conditions of the
Thai economy. The law of one price and purchasing power parity theory state that the exchange
rate and inflation correspond, and there should be exchange rate pass-through in the economy.