A recent report from Bank of Baroda revealed that historical analysis of oil price spikes indicates no lasting effects on India’s GDP or inflation trajectory. Over the past 54 years, despite 18 instances of crude price increases exceeding 20%, the study found no significant long-term correlation between oil prices, GDP, CPI, and WPI. Notably, the report highlighted that oil price shocks are typically short-lived, lasting around 6–7 months, with concentrated impacts in specific years.
The report emphasized that while short-term correlations between oil prices and wholesale prices are robust, the link with CPI is weaker due to the lower weightage of fuel in the CPI basket and government interventions to mitigate retail fuel price fluctuations. RBI Governor Sanjay Malhotra warned of potential fuel price hikes in India if the Middle East conflict persists, driven by escalating global crude oil costs. He underscored the challenges posed to India’s inflation targeting framework by surging energy prices, hinting at possible policy adjustments by the Reserve Bank in its upcoming monetary policy meeting on June 5.
According to the report, Crisil Ratings projected Brent crude to average $90–95 per barrel in FY27, reflecting a substantial 32% year-on-year increase. This forecast underscores the potential economic implications of sustained high oil prices on India’s fiscal landscape and inflationary pressures.
