As tensions escalate in the Middle East, economists suggest that India’s fuel prices are likely to remain stable for the time being. However, any further escalation in the conflict could potentially disrupt India’s inflation dynamics, particularly if oil prices rise significantly, experts warn.
The recent attack launched by Iran on Israel has raised concerns about the potential impact on global oil prices. Despite this, economists believe that an immediate adjustment in fuel prices is unlikely, barring any significant escalation in the conflict. World leaders have urged restraint from Israel in response to the recent attacks, emphasising the importance of avoiding further escalation. The Reserve Bank of India (RBI) anticipates a decline in inflation to 4.5% in the current fiscal year, down from 5.4% in the previous fiscal year. Recent data showing a decline in consumer inflation to a 10-month low of 4.9% in March has provided some reassurance. However, economists caution that sustained higher oil prices could impact inflation calculations if there is a pass-through to retail prices and companies decide to pass on higher input costs to consumers. Economists estimate that a 10% increase in oil prices could potentially impact inflation by 0.2-0.3 percentage points if input costs are fully passed through to consumers. Despite Brent crude prices hovering around $89.7 per barrel, nearly one percent lower on Monday compared to its previous close, the potential for a sustained increase remains a concern.
On a positive note, easing food inflation may help counteract some of the upward pressure on prices due to higher oil costs. Consumer inflation eased below 5% in March for the first time in five months, providing some relief amidst concerns about rising fuel prices. Overall, while the immediate outlook for fuel prices appears stable, economists emphasise the need for continued monitoring, particularly in light of geopolitical developments in the Middle East and their potential impact on global oil markets.
