Crude Reality: RBI Flags Inflation Risk from Oil Price Surge

India’s inflation trajectory could face renewed pressure if global crude oil prices spike, warns a fresh research paper by RBI staffers. The study estimates that a 10% rise in international crude prices may push domestic headline inflation up by 0.20%, underscoring the economy’s vulnerability to energy shocks.

 

Key takeaways from the RBI paper:

 

A 10% increase in global crude prices could raise India’s headline inflation by 20 basis points on a contemporaneous basis.

 

The impact is more pronounced on wholesale price index (WPI) and core inflation (excluding food and fuel), driven by higher transport and input costs.

 

Retail fuel prices, influenced by excise duties and government interventions, buffer immediate CPI effects but prolonged oil price hikes can still seep into broader inflation metrics.

 

Elevated energy costs may distort inflation expectations among consumers and businesses, potentially derailing the ongoing disinflation process.

 

Current context and policy implications:

 

The global economic landscape remains fragile, with trade fragmentation and supply chain disruptions amplifying oil price volatility.

 

While international crude prices are currently moderating due to increased supply and subdued demand, the RBI paper urges vigilance.

 

Policymakers are advised to reduce India’s dependence on imported crude by promoting non-fossil energy alternatives and exploring favorable trade agreements with oil-exporting nations.

 

The study, authored by Sujata Kundu, Soumasree Tewari, and Indranil Bhattacharyya, does not represent the RBI’s official stance but provides timely insights into inflation dynamics amid global uncertainty.

 

Sources: Economic Times, Business Today, NDTV Profit