Inflation Concerns of India Over Russia-Ukraine War
Top Story MilkywayBlogs 25-Feb-2022 Comments (4) 13

Inflation Concerns of India Over Russia-Ukraine War

Russia-Ukraine War News: The invasion of Ukraine led to an increase in oil prices that could pose a risk to the rising inflation of India and impact the current account.

Tanks moved to the city just after President of Russia Vladimir Putin authorized an operation in Mariupol of Eastern Ukraine, on February 24, 2022.

The Russia-Ukraine war led to an increase in oil prices, further posing the risk of rising inflation in India. India imports nearly 80 percent oil of its requirement but shares oil imports of around 25 percent. Increment in oil prices also impacts the deficit of the current account that consists of the difference between the goods values and import/export services.

Additionally, the surge intensifies pressure on state-owned oil retailers as per the NDA government, to hike prices of the retail. These hikes are put on hold state elections and increase expected things immediately after the end of polling. A calibration hike is becoming a complex task now that gives the impact of cascading inflation that could follow in the rise of prices.

Prices of Brent crude hit $96.7 in terms of per barrel which is the highest since September 2014, after President of Russia Vladimir Putin deployed troops to Luhansk and Donetsk in Ukraine. The increment in the global tension and invasion of Ukraine caused a surge in oil prices.

The increment in the crude price poses fiscal, inflationary, & external sector risks. Inflation may turn more structural with the rise in oil prices having the effect of a pass-through with other sectors.

Oil-related crude products directly share 9 percent in the WPI basket, as per the report by the Bank of Baroda. The chief economist of Bank of Baroda, Madan Sabnavis said, a rise of 10 percent in the crude would lead to an increment of 0.9 percent in the WPI inflation.

Finance Minister of India, Nirmala Sitharaman said that the surge in crude oil prices and Russia-Ukraine tension posed a risk to the country’s financial stability.

Increment in fuel prices is expected to hit the consumption directly, which is already affected by the pandemic. The government estimated the PFCE or private final consumption expenditure for the year 2021-22 is up to Rs 80.81 lakh crore, and down from Rs 83.22 lakh crore in the year 2019-20.

Retail inflation of India had hit a high of 6.01 percent in January, which is to breach the set upper tolerance level of the Reserve Bank of India. This spike was mainly caused because of the high food inflation that hit a 14-month high of 5.43 percent with a high base.

Though price inflation in January softened to 12.96 percent down from 13.56 percent a month ago, that was the tenth month of being in double digits consecutively.

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