Spike in the Crude Oil price in the international market will have bad impact on retail inflation in India. After touching a low of 1.46% in June, inflation rate was moving upwards and spike in the oil price will increase it further. As a result, RBI will have to wait for interest rates cut in 2018.
Economists are expecting that retail inflation will remain around 4 to 4.5% in 2018 and will not dip below 4%. Major contributing factors to the inflation would be increasing crude oil prices, increase in HRA (House Rent Allowance) of the Government Employees under implementation of 7th pay commission.
Retail inflation is important factor while deciding interest rate policy by the RBI. During 2017, inflation rate has remained in the range of 1.46% to 4.88%. RBI is expecting inflation rate to be in the range of 4.2% to 4.6%, by March 2018.
RBI wants to achieve inflation target of 4% and within range of plus or minus 2%. Wholesale price remained in the range of 5.25% to 6.55% and moved down in the range of 0.90% to 1.88% in the middle of the year and further increased to 3.93% in October. WPI (Wholesale Price Index) Data for November will be available only in the January 2018.
Rising Crude Price will push further country’s oil import bill and will cause inflation to increase. Yes Bank, CEO, Rana Kapoor said that we can see rise in inflation in 2018 considering increase in the oil price. He says that implementation of the 7th pay commission to revise the housing allowances will increase inflation further. He expects CPI (Consumer Price Index) to move towards 4.7% in 2018 and average CPI inflation will remain around 4.1% to 4.2%, which is near to RBI’s expected targeted rate of 4%.
Currently, Government is in comfortable situation but Finance Minister Arun Jaitley has a tough time ahead.