Mumbai: There’re ominous signs on the price front and the government’s fiscal side if crude oil prices remain at the current elevated level triggered by the Russian invasion of Ukraine, according to a research report from SBI.
If the crude oil price rises to an average of $100 (or $90 per barrel) from the current average of $74 per barrel, inflation is likely to increase by 52-65 bps (32-40 bps), according to the report. Further, the government could face a revenue loss of Rs 95,000 crore to Rs $100. 1 Lich crore on account of the oil price rise, the SBI report said. “We are, however, hopeful of a significant course correction in oil prices going by trends it said.
The average price of the Indian basket of crude oil has risen to SSA87 per barrel in January 20122 from $634 in April 2021 a 335 percent increase.
According to SBI calculations, every $10 per barrel increase in Brent crude price will lead to an increase in inflation by 20-25 bps.
The inflation scenario changes if crude oil, food, services, and housing prices remain at elevated levels. When taking this into account, there appears to be an upside risk of 87-100 bps to RBI’s inflation of 4.5 percent for FY23 if crude averages to $90 and 107 127 bps upside if it averages to $100.
Other commodities which will see inflation include precious metals, gold, palladium, and platinum, the report said. Ukraine being important exporter of agriculture products, there will be an impact on the prices of wheat and com if navigation lines in the Black Sea are disturbed.