Shafaqna India: India’s wholesale inflation could remain under pressure in the coming months as volatile oil prices, rising insurance and freight costs and intensifying El Nino effects threaten to push up the cost of imported commodities and food, economists said.
Sonal Badhan, economist at Bank of Baroda, said the outlook for global energy prices remains uncertain as hopes of a US-Iran peace deal fade and two crucial maritime arteries — the Strait of Hormuz and Bab al-Mandeb — remain vulnerable to disruption.
“With shipping routes under threat, volatility in oil prices can be expected,” Badhan said, adding that higher insurance premiums could further inflate freight costs and feed into the prices of imported goods.
The pressure could extend to food prices as well. Badhan said the effects of El Nino are expected to intensify during August and September, potentially keeping food inflation and headline wholesale price inflation (WPI) elevated.
Food, fuel drive inflation
Headline WPI stood at 9.8 per cent in July, with all three major components — food, fuel and manufactured products — contributing to the sharp rise in wholesale prices.
Food inflation remains a key source of pressure, with fruits, milk, eggs and meat products registering increases.
The fuel basket has also continued to burn hotter. Fuel and power inflation rose 20 per cent year-on-year in July, although it eased from 27.4 per cent in June. Mineral oil inflation climbed 32.4 per cent, while prices of crude petroleum and natural gas rose 27 per cent.
Within the mineral oil basket, crude petroleum, natural gas, aviation turbine fuel (ATF), LPG and lubricating oils all recorded notable increases, Badhan said.
Global oil prices add to pressure
The surge in domestic wholesale prices comes against a backdrop of a sharp rise in global crude prices. International crude was around 21 per cent higher year-on-year in July and had risen about 26.5 per cent year-on-year through August, with geopolitical tensions and threats to key shipping routes injecting further turbulence into energy markets.
The knock-on effects could be significant for India, where higher crude prices can raise transportation, manufacturing and import costs, eventually filtering through to domestic prices.
Badhan said similar trends were visible in output producer price inflation (PPI), with the headline index rising 9.6 per cent, compared with a contraction of 0.5 per cent in the corresponding period last year.
However, input PPI offered some relief, with month-on-month price pressures visible in only 10 of 21 manufactured-product categories, including basic metals, machinery, beverages, furniture and other non-metallic mineral products.
For now, the inflation outlook remains clouded by forces beyond domestic control. A volatile oil market, fragile shipping routes and an increasingly potent El Nino could keep the pressure cooker of wholesale prices simmering, leaving imported commodities and food prices particularly vulnerable in the months ahead.
