Rising Crude Prices Unlikely to Significantly Impact Inflation, Says Finance Minister

• Finance Minister Nirmala Sitharaman said rising global crude oil prices are unlikely to have a substantial impact on inflation at present.
• India’s inflation is currently near the lower bound, reducing immediate concerns.
• The medium-term impact of crude price rises will depend on several factors.
• These include exchange rate movements, global demand-supply conditions, and monetary policy transmission.
• Other factors include overall inflation trends and the extent of fuel price pass-through to consumers.
• The government has taken steps to control inflation and protect consumers.
• Measures include increasing buffer stocks of essential food items.
• The government is also selling grains in the open market strategically.
• It has facilitated imports of essential goods during shortages.
• Global crude prices had generally been declining over the past year before the recent surge.
• Retail inflation stood at 2.75% in January under the new CPI base year (2024).
• The Consumer Food Price Index was 2.13% in January.
• The weight of fuel and light in CPI has been reduced from 6.84 to 5.49 in the new base year.
• The weight of food and beverages in CPI has also been reduced to 36.75% from 45.86% earlier.
• These changes aim to reduce seasonal volatility in inflation caused by food prices.
• The Finance Ministry said crude prices must stay above $100 per barrel for a sustained period to significantly affect macroeconomic indicators.
• A prolonged conflict in the Gulf region could still create risks for inflation and economic stability.
• Such tensions could affect the exchange rate, trade flows, capital flows and current account deficit.
• Fertiliser and petrochemical sectors may face cost pressures due to higher LNG and crude prices.
• Since the conflict began, LNG prices have risen 9% and crude prices about 50%.
• Experts say the Wholesale Price Index (WPI) may be more affected than CPI.
• Manufacturing input costs, especially petroleum and fertilisers, could increase.