RBI paper says inflationary impact of crude oil prices is a key metric to sensitise monetary policy formulation

A research paper published in Reserve Bank of India?s latest monthly bulletin stated that oil prices and their inflationary impact is a key metric that sensitise monetary policy formulation in economies vulnerable to oil price shocks, particularly net oil importers, where rising oil prices can significantly dampen economic growth and stoke inflation pressures. The paper titled ?Revisiting the Oil Price and Inflation Nexus in India? by Sujata Kundu, Soumasree Tewari and Indranil Bhattacharyy has concluded that direct impact of international crude oil price changes to domestic petrol and diesel inflation, and indirectly through transportation and input costs, is evident in the post-deregulation period albeit at a subdued level as government intervention by taxes, cess and regulation of oil marketing companies has often muted the impact. The results of the empirical analysis suggest that a 10 per cent increase in international crude oil prices could raise India?s headline inflation by around 20 basis points on a contemporaneous basis.

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