MUMBAI, Oct 24: India’s central bank cautioned on Monday that the pass-through of high international oil prices to domestic prices was incomplete and that second-round inflation effects needed to be taken into account.
Benchmark crude oil prices have risen nearly 40 per cent this year but India has raised domestic petrol and diesel prices by only 14 per cent in the same period.
“It needs to be recognized that the pass-through of high international crude oil prices to domestic prices remains incomplete,” the central bank said in its mid-term macroeconomic and monetary developments review.
As a result, it said, two factors needed to be considered.
“First, the advisability of treating the oil price increase as a shock rather than a permanent shift in relative prices may need to be questioned and second, the inevitability of second order effects on inflation needs to be taken on board.”
The central bank released its report a day ahead of its mid-year review of monetary policy at which many analysts expect it will raise its short-term interest rate by 25 basis points to 5.25 per cent.
The central bank said the average inflation rate had eased to 5.3 per cent on Oct 1 from 6.2 per cent a year ago.
Wholesale price inflation, the most widely tracked measure of inflation, quickened to an annual 4.62 per cent in the year to Oct 8 from a three-year-low of about three per cent at the end of August.—Reuters
