Rising Crude Oil Prices: Inflation Risk.!
The Economic Division of India's Finance Ministry, in its Monthly Economic review for february 2024, highlighted that retail inflation has remained within the Reserve bank of India's (RBI) tolerance band of 2 to 6 percent for six consecutive months. Notably, the retail inflation rate for february stood at 5.1 percent. The review emphadata-sized a decline in core inflation, attributed to continuous price reductions.
Despite fluctuations in certain food prices, inflation has largely remained below 6 percent, except for July and august 2023. In terms of food production, the Finance Ministry anticipated a rise, with a projected increase of 1.3 percent in wheat production and 0.9 percent in Kharif rice production for the fiscal year 2023-24. Additionally, a 0.9 percent increase in arhar dal production compared to the previous year was expected to contribute to a reduction in food inflation.
The Ministry expressed optimism about a positive inflation outlook in the forthcoming months. However, the report cautioned about the red Sea Crisis impacting global food commodity prices. Approximately 80 percent of India's merchandise trade with europe traverses the red Sea, encompassing crucial commodities such as crude oil, auto ancillaries, chemicals, textiles, and petroleum steel.
Disruptions in trade routes due to the crisis could lead to increased freight costs, insurance premiums, and extended transit times, potentially resulting in expensive imported goods. The looming threat of rising crude oil prices due to trade disruptions poses a risk of inflation escalation, which could adversely affect economic growth.
Despite fluctuations in certain food prices, inflation has largely remained below 6 percent, except for July and august 2023. In terms of food production, the Finance Ministry anticipated a rise, with a projected increase of 1.3 percent in wheat production and 0.9 percent in Kharif rice production for the fiscal year 2023-24. Additionally, a 0.9 percent increase in arhar dal production compared to the previous year was expected to contribute to a reduction in food inflation.
The Ministry expressed optimism about a positive inflation outlook in the forthcoming months. However, the report cautioned about the red Sea Crisis impacting global food commodity prices. Approximately 80 percent of India's merchandise trade with europe traverses the red Sea, encompassing crucial commodities such as crude oil, auto ancillaries, chemicals, textiles, and petroleum steel.
Disruptions in trade routes due to the crisis could lead to increased freight costs, insurance premiums, and extended transit times, potentially resulting in expensive imported goods. The looming threat of rising crude oil prices due to trade disruptions poses a risk of inflation escalation, which could adversely affect economic growth.