Inflation Risks coming from global commodity prices are likely to be lower in FY24 than in FY23: Economic survey 2023 observation

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The Economic Survey 2023, tabled before the parliament by the Financial Minister Nirmala Sitaraman has reviewed the inflation risks coming from the global commodity prices.

  Due to the anticipated slowdown in advanced economies, inflation risks coming from global commodity prices are likely to be lower in FY24 than in FY23, one of the key observations in the 2023 economics survey. India’s inflation management has been particularly noteworthy and can be contrasted with advanced economies that are still grappling with sticky inflation rates. However, in terms of overall risks to the benign baseline view on inflation, upside risks to India’s projected rates may outweigh the downside risks.

 For instance, the re-emergence of Covid-19 in China can trigger supply chain disruptions as was the case during the pandemic period. On the other hand, if China returns to normalcy from Covid-19, there can be a surge in commodity demand – thus reversing the recent slump in commodity prices.

Further, the probability of a soft landing in the US economy has risen in recent months, and that might keep up the US demand for oil. Similarly, the geopolitics associated with oil can particularly affect our imported inflation.

The one-year-ahead inflationary expectations by businesses have shown a decreasing trend in the current fiscal.

When we analyse the current inflation from 1970 Firstly, recent oil price rises are proportionally smaller than the 1970s crisis, which had taken oil prices to historic highs. Secondly, in contrast to the 1970s crisis, which was confined to oil prices, the recent crisis has seen pervasive price increases across a broader range of commodities. Prices of non-oil energy, some agricultural goods, fertilisers, and metals have all risen well above their pre-pandemic levels in the current year.

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