Rising gasoline and diesel prices expected to fuel inflationary pressure

NEW DELHI: The upward revision of gasoline and diesel prices after a gap of more than four and a half months is expected to put further pressure on prices and strain household budgets amid swirling uncertainty due to Russia’s invasion of Ukraine.
The impact of the increase across the supply chain has the potential to hurt growth at a time when the economy was forecasting a robust recovery from the deadly impact of the three waves of Covid.
“Overall, we see increasing price pressures to the tune of 80 to 100 basis points (100 basis points = 1 percentage point) pushing average inflation into the 6.1 to 6 range. 3 percent in FY21 compared to our estimate of 5.3%,” said Yuvika Singhal, an economist at research firm QuantEco.

Retail price inflation was above the central bank’s comfort level for the second consecutive month in February. It hit an eight-month high of 6.1% in February, while wholesale price inflation remained in double digits for the eleventh consecutive month due to higher prices for manufactured goods, crude oil and natural gas and primary non-food items. .
A $10 per barrel increase in the price of oil is estimated to reduce growth by 0.2-0. 3 percentage points, raises WPI inflation by about 1.7 percentage points and worsens the CAD (current account deficit) by $9-10 billion. According to an estimate by the RBI, a 10% change in crude oil prices impacts retail inflation by 30 basis points. High global crude oil prices above $90 a barrel could lead to revenue loss of Rs 95,000 crore to Rs 1 lakh crore in FY23, a report by the Economic Research Wing has shown. of the country’s largest lender, SBI. Fitch Ratings on Tuesday upgraded its inflation forecast for India and said it saw inflation strengthening further, peaking above 7% in the third quarter of 2022, before gradually declining. The agency expects inflation to remain high throughout the forecast horizon, averaging 6.1% annually in 2021 and 5% in 2022.
Economists said the Center may need to cut excise duties further if Brent crude remains above $90 a barrel to cushion the impact on consumers and overall price pressures.
“While the lower excise duties compared to last year will help mitigate the impact of higher international crude oil prices, it will not be enough to reduce fuel inflation if Brent prices remain above $90 a barrel throughout the next fiscal year. In this case, the government may need to reduce excise duties further to ease the burden on consumers,” said Dipti Deshpande, senior economist at the agency. Crisil rating.