Indias Inflation Accelerates Amid Rising Energy Costs

Inflation in India, the world’s third largest crude oil importer, has accelerated during April as elevated global oil and gas prices have begun to filter through to consumer prices.

The annual consumer price index is projected to have risen to 3.8 per cent in April, compared with 3.4 per cent in March, according to a Reuters poll of 46 economists conducted between 4 May and 8 May. Survey responses ranged from 2.8 per cent to 4.2 per cent, with official data scheduled for release on 12 May.

Economists are in agreement that the impact of higher energy prices has started to affect consumer prices, although the average forecast remains below the Reserve Bank of India’s 4 per cent inflation target. For over a year, India’s inflation had remained below this threshold, supported by lower food and energy prices alongside favourable base effects.

The Middle East conflict and subsequent oil and gas supply disruptions have already driven a 40 per cent surge in crude and liquefied natural gas prices, creating headwinds for Asian economies. Whilst India has reduced taxes on petrol and diesel to shield consumers, analysts suggest that retail fuel prices will ultimately need to rise if supply constraints persist.

Dhiraj Nim, an economist at ANZ bank, indicated that India may need to increase retail fuel prices during the second quarter. He noted that neither fiscal reserves nor the buffers held by oil marketing companies are sufficient to absorb a prolonged supply shock.

Indian companies have already raised prices for liquefied petroleum gas, the country’s primary cooking fuel, following the significant supply loss from the Middle East. Indian Oil Corporation has increased liquefied petroleum gas prices for domestic industrial users and jet fuel prices for foreign airlines, whilst maintaining household liquefied petroleum gas prices at current levels.