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India could be looking at problematic inflation in the coming months if things continue as is

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WhatTheFUD
@karamyog
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Brent Crude has now surpassed $95 per barrel and looks all set to cross the $100 mark very soon. Crude oil is India's biggest import. India imports nearly 85% of its crude oil requirement. Compared to last year, Brent Crude is up 66.67%!

Natural Gas is the same. India imports nearly 50% of its NG/PG requirement.

Up until a few days ago, even Natural Gas was up almost 100% from a year ago. It's up about 50% right now.

There is another problem - US Dollar

The US Dollar has strengthened in the past year against major world currencies. The same is the cast against the India Rupee.

The above three trends should be worrying the Indian government and economists.

As mentioned earlier, India is a Net Imported of energy. The country is looking at an energy import bill of $100+ billion this year.

In a country that is fighting high inflation and unemployment, rising crude prices are not a good sign. One they will put temporary inflation pressures on goods India imports. Supply-Demand imbalances are already pushing inflation to 5%+ levels in the developed world. Post the state elections, petrol, diesel, and CNG/LPG prices in India should resume their upward trajectory in line with global markets. This makes the cost of goods even higher in India. A currency that is depreciating only adds fuel to the fire! The icing on the cake right now is the Central Bank's accommodative stance that wants to focus on growth. The crude oil problem may be temporary but globally and hence focus on growth may be fine but central banks globally are looking at hiking rates significantly. The interest rate differential will put the Indian currency to the test meaning just one thing - More weakening.

More than importing energy, India is importing inflation from the world. If the above trends continue, India will only be importing higher inflation and that will adversely and severely impact a country that is already crying for relief from rising prices and no income.

Posted Using LeoFinance Beta