How rising global commodity prices hurt Indian economy

With the Wholesale Price Index (WPI) scaling to a new high of 12.94% and Consumer Price Index (CPI)-based retail inflation touching a six-month-high of 6.3% in May 2021, the Reserve Bank of India (RBI) has termed rising commodity prices as a high systemic risk. Mint explains:

Why is commodity price rise a concern?

With the economy charting a course toward recovery following the devastating second wave of covid-19 cases, its susceptibility to external shocks and the fear of a third wave is a matter of concern. In such a scenario, rising international commodity prices have been termed as high systemic risk by RBI in its Financial Stability Report of July 2021. Prices of steel, crude oil, iron ore, copper, aluminium etc., have risen in the domestic and international markets. The central bank wants to be cautious and monitor if the impact of rising WPI is being extended to CPI and act accordingly.

How can imported inflation impact India?

Spiralling global commodity prices of crude oil and base metals are bound to intensify inflation in countries importing such commodities. This could be due to increased imported commodities cost as well as depreciation of home currency resulting in higher import prices. Crude, petroleum products, coal coke and briquettes etc.

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