New Delhi [India], September 30 : Rising crude oil prices and food inflation risks from a below-normal monsoon could prompt the Reserve Bank of India (RBI) to consider a rate hike in October, said economist Sunil Sinha, pointing to “hidden inflation” as higher oil costs have not yet been passed on to consumers.
Speaking to ANI, Sinha, Former Senior Economist, NCAER and Former Principal Economist & Director, Public Finance, India Ratings & Research, said rising international crude oil prices remain a concern for India as their impact is felt across the economy both directly and indirectly. He noted that global crude prices have climbed again after briefly easing on hopes of a truce in the Middle East, but the latest increase has not yet translated into higher domestic retail fuel prices.
“Despite the global oil prices once again going back to USD 100 a barrel and in fact last month India's average import price of oil was somewhere around USD 114 a barrel,” he said.
Explaining the recent movement in crude prices, Sinha said, “Oil prices came down with the hope that some kind of a truce is happening in the Middle East, but subsequently that did not happen so the crude prices have again gone up.”
Meanwhile, Brent crude was trading at around USD 97.35 per barrel while crude oil was trading at around USD 90.05 per barrel at the time of reporting.
The economist noted, despite the renewed rise in global crude prices, the increase has not been passed on to consumers through higher domestic pump prices. However, as per Sinha, that does not mean the underlying inflationary pressure has disappeared.
Sinha argued that the RBI would factor such underlying price pressures into its monetary policy decisions even if they are not immediately reflected in retail fuel prices.
As per the economist, “this is a hidden inflation that is lurking on the horizon.”
Thus, “When RBI will have to take a call, then RBI will certainly take into consideration this hidden inflation into the economy,” he said.
Sinha said these underlying pressures, along with elevated retail and wholesale inflation, could make the central bank more inclined towards raising interest rates. “RBI in my view will be more keen to raise the rate of interest.”
On food inflation, Sinha said the below-normal monsoon could exert further pressure on prices, although the extent of the impact would depend largely on proactive government measures. He further noted that the RBI has been flagging inflation risks for some time, while both retail and wholesale inflation have risen in recent months.
“So my own sense is that these things leaves very little room with the RBI and as a result in the October policy RBI may likely think in terms of raising rates.”