Rising oil and gas prices escalate inflation worries

Brent crude oil rising to three-year high has escalated inflation worries and analysts have said that oil-induced rise in input price may result in corporate margins declining. Brent crude oil prices have gained 20% in one month to hit a three-year high of $80 per barrel earlier this week.

Retail inflation

Retail inflation is expected to move sharply up as oil-marketing companies in India will have no option but to raise petrol and diesel prices in tune with rising global rates.

“The sharp increase in global energy prices and the prospects of elevated prices may pose another source of risk to global and domestic inflation. Markets have been sanguine about inflation being transitory. However, ongoing supply-led disruptions across commodities may result in higher-than-expected entrenched inflation,” the Business Standard reported quoting analysts at Kotak Institutional Equities.

Overall inflation was in 2020-21 at 4.3%, up from 3.7% in FY20, the news report said, adding that CPI (inflation as measured by consumer price index) was 5.5% on average in April-August 2021, while WPI (wholesale price index) WPI was in double digits.

Gas prices

Some experts have also pointed out the inflationary effects of higher power cost in China and Europe. It is also feared that increased natural gas prices would result in higher food prices.

“Power costs are up sharply in Europe and China, leading to higher operating costs for manufacturers. This, coupled with existing Covid-19 disruption to the global supply chain, may lead to even higher inflation in manufactured and consumer goods,” the Business Standard quoted Dhananjay Sinha, managing director and chief strategist, JM Financial Institutional Securities, as saying.

Allaying fears, Madan Sabnavis, chief economist, CARE Ratings, said overall consumer inflation will remain more or less at the current rate due to benign food prices and base effect.