The surge in edible and crude oil prices are bound to feed into headline inflation, which has already breached the upper tolerance limit of the Reserve Bank of India’s 2%-6% target range. The impact of the Ukraine crisis could force India’s central bank to raise its inflation forecast, but may leave little scope for it to tighten monetary policy amid a deteriorating global growth outlook.
With crude prices over $100 a barrel and amid geopolitical uncertainty, he sees it possible for retail inflation to average 6% next fiscal year beginning April. India relies on imports to meet about 85% of its oil needs, and is expected to let pump prices rise once key state elections end.
A 10% increase in retail prices of gasoline, diesel and liquefied petroleum gas could result in a 50 to 55 basis point rise in headline consumer prices over the course of a year. Russia’s invasion of Ukraine is a risk to India’s budget math, as it could upset the government’s plan to raise funds from assets sales.
More Risks
Record cooking oil prices in global markets are complicating the job of policy makers in India. The sharp rise in prices of commodities has started seeping into domestic prices, with sunflower oil prices rising by as much as 25 rupees (33 cents) a liter. Costlier crude could also widen the deficit in the nation’s current-account, and weigh on the local currency.
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