Higher oil prices could lead to higher than expected inflation rates in 2024: Fitch
Middle East could upend countries’ inflation and growth calculations, leading to a higher than expected inflation for India as well, according to Fitch Ratings.
“Higher oil prices would lead to higher-than-expected inflation rates in 2024, followed by corrections in 2025.
Turkiye sees the highest percentage point rise in forecast inflation, followed by India and Poland. However, the India and Poland’s relative increases would be much larger,” the global rating agency noted.
The calculations assume oil prices going up to $120 per barrel in 2024 and staying elevated at $100 per barrel in 2025, owing to supply restrictions.
“World GDP growth would be 0.4pp lower in 2024, but only 0.1pp lower in 2025, although the absence of a significant rebound suggests there could be a persistent moderate impact beyond the initial shock,” Fitch said.
The rating agency predicted India to grow 6.3% in FY24 and maintain 6.5% growth until FY25.
It raised India’s potential growth to 6.2% last week, but still said that India is likely to grow slower than its pre-pandemic potential.
Oil prices of the Indian crude basket rose to $90.08 in October, compared with $83.76 at the start of the fiscal, but have since declined to $85.55 in November.
“The monetary policy response is quite muted in this scenario because a supply-side shock would increase price pressures through higher petrol prices and costs, but reduce demand from firms and households.
Central banks would, all else being equal, look to increase policy rates to address higher inflation, but loosen policy in response to demand shortfalls,” Fitch said, leading to slower rate cuts in second half of 2024.
The Reserve Bank of India held policy rate at 6.5% for the fourth consecutive
