Keep an eye on global commodity inflation - Hindustan Times
close_game
close_game

Keep an eye on global commodity inflation

ByHT Editorial
Feb 26, 2021 06:33 AM IST

Recent movement in global commodity prices suggests that we could be heading for a long-term rally after a benign run, followed by a collapse during the pandemic.

India’s benchmark inflation rate, as measured by the Consumer Price Index (CPI), stayed above the upper limit of the Reserve Bank of India’s tolerance zone continuously between April and November 2020. This inflationary phase was driven by a spike in food prices, and it has ended with a collapse of the same from December. While food is an important driver of India’s retail inflation, it is not the only source. Overall prices, both for consumers and producers, also depend on the price of non-food commodities, including crude petroleum.

India’s benchmark inflation rate, as measured by the Consumer Price Index (CPI), stayed above the upper limit of the Reserve Bank of India’s tolerance zone continuously between April and November 2020. This inflationary phase was driven by a spike in food prices, and it has ended with a collapse of the same from December. (MINTPHOTO)
India’s benchmark inflation rate, as measured by the Consumer Price Index (CPI), stayed above the upper limit of the Reserve Bank of India’s tolerance zone continuously between April and November 2020. This inflationary phase was driven by a spike in food prices, and it has ended with a collapse of the same from December. (MINTPHOTO)

Recent movement in global commodity prices suggests that we could be heading for a long-term rally after a benign run, followed by a collapse during the pandemic. When read with the fact that core inflation, the non-food non-fuel component of retail inflation, has not come down in recent months — it was at 5.75% in January — this is a cause for concern in India. That both the Centre and the states have not reduced duties on petrol-diesel, despite crude prices strengthening, is likely to generate additional tailwinds for inflation in India. Another inflationary tailwind in the medium-term will arise from the fact that the period of Goods and Services Tax compensation cess will have to be extended to compensate for the promised revenue shortfall to states when the tax was rolled out. Additional indirect taxes are bound to have an inflationary impact.

Hindustan Times - your fastest source for breaking news! Read now.

With systemic domestic tail wind to inflation in the medium-term, India will do well to remain vigilant against any signs of a global commodity price rally.

Unlock a world of Benefits with HT! From insightful newsletters to real-time news alerts and a personalized news feed – it's all here, just a click away! -Login Now!
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Thursday, March 28, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On