Cooling crude may ease inflation heat, give RBI room to stay on pause despite WPI surge: YES Bank
New Delhi, June 16
India's wholesale inflationary pressures remain elevated, but easing global crude oil prices and a stable rupee could help soften future price risks, potentially allowing the Reserve Bank of India to defer any immediate rate hike despite a sharp rise in wholesale price inflation, according to a YES Bank report.
The report noted that the newly rebased Wholesale Price Index (WPI) inflation accelerated to 9.7 per cent year-on-year in May from 8.3 per cent in April, reflecting continued input cost pressures across the economy.
The report noted that the newly rebased Wholesale Price Index (WPI) inflation accelerated to 9.7 per cent year-on-year in May from 8.3 per cent in April, reflecting continued input cost pressures across the economy.
The rise in wholesale inflation was primarily driven by a sharp increase in fuel prices, which climbed 30.3 per cent year-on-year, led by higher prices of petrol, natural gas and mineral oils. Manufacturing inflation also strengthened to 7.5 per cent, indicating broad-based pricing pressures.
However, the report believes that recent developments in global commodity markets could provide some relief going forward.
"There appears to be some respite for global crude oil prices, overall commodity prices and the industrial metals, owing to the announcement of the likely signing of the peace deal between US and Iran," the report said.
According to YES Bank, lower crude oil prices, coupled with the appreciation of the Indian rupee and a weaker US dollar, could reduce imported inflation pressures and lessen the need for fuel price increases by oil marketing companies.
The report further stated that "the current downshift in global crude oil prices and the relative stability of the USD/INR is expected to provide the RBI with a greater comfort in postponing its rate hike decisions greatly into the future."
In its assessment of monetary policy, the bank has lowered the probability of an August rate hike, citing softer inflation risks and the central bank's ability to wait for greater clarity on weather-related risks.
While headline consumer inflation has remained below the RBI's own projections, the report flagged El Nino-related food inflation and rising household inflation expectations as key risks to monitor in the coming months.
The report also highlighted the introduction of the new Producer Price Index (PPI) framework by the Department for Promotion of Industry and Internal Trade (DPIIT), under which the Output PPI is expected to replace the WPI over the next five years.
— ANI
Reader Comments
Finally some good news for the common man! Petrol and diesel prices have been killing our monthly budgets. But honestly, even if crude cools, will the OMCs actually pass on the benefits? They've been quick to hike prices when prices rise, but so slow to reduce. Waiting for the rocket and feather effect to work properly 🙏
As a small business owner, this WPI at 9.7% is terrifying. Input costs are already through the roof - raw materials, transport, everything. A rate hike would kill my working capital. The RBI needs to balance inflation control with growth support. Let the crude prices stabilize first before tightening any further.
Good to see YES Bank's realistic take. But the El Nino risk is real - if monsoons fail, food inflation will spike and the RBI will have to act. Remember 2023? Farmers are already worried about delayed rains. The PPI shift from WPI is also interesting - finally aligning with global standards. Let's see if it actually reduces confusion in data.
Smart analysis from YES Bank. The rupee stability is key here - if USD/INR stays around 83-84, that really helps import costs. But I'm watching the household inflation expectations data they flagged. If people expect prices to keep rising, that becomes self-fulfilling. RBI is in a tough spot between supporting growth and fighting inflation.
The fuel price component at 30.3% YoY is outrageous! No wonder everything from vegetables to bus fares is getting expensive. If crude really does cool down, I hope the government also considers cutting excise duty to
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