The oil-price volatility, higher insurance and freight costs and strengthening El Nino effects during August–September are the factors which are likely to keep pressure on imported commodities
NEW DELHI — The oil-price volatility, higher insurance and freight costs and strengthening El Nino effects during August–September are the factors which are likely to keep pressure on imported commodities, food prices and headline WPI, according to economists.
Sonal Badhan, Economist, Bank of Baroda, said that going forward, as hopes of a peace deal between US and Iran diminish and two key waterways remain under threat (Strait of Hormuz and Bab al-Mandeb Strait), volatility in oil prices can be expected.
“Higher cost of insurance will add to the total freight cost, which in turn will pose upside pressures on imported commodities. Also, the effect of El Nino is expected to get stronger in August-September period. This will also maintain pressure on food inflation and headline WPI,” said the economist.
The headline WPI was 9.8 per cent in July. At the same time, output PPI indicates that headline index rose by 9.6 per cent versus (-) 0.5 per cent last year.
In the latest WPI series, all major group heads (food, fuel and manufactured products) have contributed to the elevated inflation print.
Food inflation remains a major driver, with, fruits, milk, eggs and meat product all exhibiting upside pressures.
Within fuel inflation, mineral oil index remains on the higher side, with index for crude petroleum, natural gas, ATF, LPG, Lube oils all rising notably, said the economist.
Similar trends can be noted in output PPI as well. In contrast, input PPI shows that upside pressure (MoM) was visible in only 10 of the 21 manufactured product indices (basic metals, machinery, beverages, furniture and other nonmetallic mineral products, etc).
Fuel and power inflation rose 20 per cent YoY in July, although moderating from 27.4 per cent in June. Mineral oil inflation rose 32.4 per cent, while crude petroleum and natural gas increased 27 per cent.
Global crude prices were around 21 per cent higher YoY in July and had risen 26.5 per cent YoY till August, with geopolitical tensions and risks around key shipping routes adding volatility.