WB UNDERLINES INFLATIONARY TAILWINDS IN ’21

The average price of India’s crude oil basket in 2020, according to data from the ministry of petroleum, was $42.2 a barrel. This is in sync with the average crude oil price, as per the latest World Bank Commodity Markets Outlook, which was released last week, of 41.3 dollars per barrel in 2020. The World Bank’s projections say that average crude oil prices could reach $56 and $60 per barrel in 2021 and 2022.

Palm oil and soybean oil, two important import requirements for India cost $751.8 and $394.2 per ton in 2020. Their price is expected to increase to $975 and $500 per ton in 2021, higher than the 2019 levels of $601.4 and $347 per ton. The same holds true for most industrial metals such as aluminium, copper etc.

India’s retail inflation, as measured by Consumer Price Index (CPI) stayed above 6%, the upper limit of the Reserve Bank of India’s tolerance band in 10 out of 12 months in 2020. While it went down in December 2020 and January 2021, it started increasing once again from February and reached 5.5% in March. Core inflation, which measures the non-food, non-fuel component of CPI, reached 6.1% in March , its highest level since June 2018. The Wholesale Price Index (WPI), which is more representative of prices of producer goods such as metals, reached 7.4% in March , its highest value since March 2013.

“The bull run in commodities in 2021 as indicated by the World Bank means that India’s core inflation in particular will tend to increase especially for metals. This has already been observed in both CPI and WPI and will persist. On the other hand the comfort provided is on the oil front where prices are expected to remain stable from here on”, said Madan Sabnavis, chief economist at CARE Ratings.

To be sure, while annual growth in oil prices could be lower, this also means that petrol and diesel prices will continue to remain at the current levels, unless government taxes are reduced.