Sharp Rise in Crude Prices & Falling Value of Rupee

Inflation under check despite sharp rise in crude prices.

Considering sharp rise, in crude prices &falling value of the Rupee, the Narendra Modi led NDA government has done a descent job to keep the inflation under check so far. What has helped the government is that good harvest and increased farm output has brought the food prices down.

India’s wholesale price inflation (WPI) surged to 5.13% in September 2018 from 4.53% in August this year. The annual growth in wholesale price index (WPI) in the quarter ending September 2018 was 4.98%.

The Consumer Price Index (CPI) grew at 3.88% in this period, after having grown at more than 4% in the last three quarters.

Although the inflation has increased, it has not soared to levels which would be seen as major cause of concern, considering sharp rise in crude prices and falling value of the Rupee.

Inflation, put in layman terms, is something that effects the price of commodities in the market. If inflation is in check, it means that government is in control of price rise.

It is a good news to the consumers, but it also presents problem to the government in terms of spending. The subdued inflation numbers due to low food prices means that the government may have to shell out more to compensate farmers for low market prices of some crops.

The government is committed to this due to its MSP policy and PM Modi’s aim to double farm incomes by 2022.

Budgetery problems apart, inflation under control is good for consumers. Inflation in paddy, milk and oilseeds declined while that in cereals, wheat and potato increased to 5.54%, 8.87% and 80.13%, respectively, the data release last week showed.

In the wholesale basket, the pace of decline in inflation slowed for onions, and eggs and meat.

Many had expected the inflation to soar with rising crude prices as oil prices and inflation are often seen as being connected in a cause-and-effect relationship. As oil prices move up or down, inflation follows in the same direction.

Higher crude prices will adversely affect the twin deficits-fiscal and current account deficit-of the economy, which will have spillover impact on the monetary policy, and consumption and investment behaviour in the economy.

Inflation was rising at a fast pace CPI was growing in double digits before the 2014 general elections. Rising inflation under the United Progressive Alliance (UPA) II came on the back of high food prices.

Until March 2014, both CPI-Food and WPI-primary food article components were growing at a faster pace than the non-food component of the CPI.

While earlier the Reserve Bank of India used WPI inflation to manage monetary policy expectations, it is now the CPI inflation which is largely taken into account.

For the common man it is always better to keep retail inflation which is the CPI or the Comsumer Price Inflation number in mind. It is a better measurement of what is largely happening with consumer prices.

Back to top button