Creeping threat – The Hindu BusinessLine

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The surge in global commodity prices poses a challenge in managing inflation

At a time when the demand contraction caused by the second wave of the Covid-19 pandemic is beginning to threaten growth, the surge in global commodity prices is likely to pose fresh challenges. As global growth began rebounding this year, demand for all commodities — agri, metals and energy — has also been rising. The Commodity Research Bureau’s all commodity index has gained 22 per cent since the beginning of 2021 and 47 per cent over the past 12 months. Lower inventory carried forward this calendar year due to production cuts in 2020 coupled with rising demand from China has made prices of metals such as iron ore, copper and aluminium rally around 15 per cent over the last three months. Agri commodities have also witnessed spike in prices due to adverse weather as well as higher demand from livestock owners. Global crude oil prices may have steadied in recent times due to the resurgence of the pandemic in many countries leading to travel restrictions but they’re still up almost 30 per cent in 2021.

The silver lining for inflation in India is that the second wave of the pandemic has not impacted supply, as pointed by the RBI. Food inflation may moderate further if the monsoon is normal, as has been predicted. The Centre can provide some relief by cutting the excise duty on fuel. Bringing petroleum products under GST could be a good way to start rationalising fuel prices for consumers. While the Reserve Bank of India has, of late, been giving greater weight to growth, it will have no choice but to take apt monetary action if CPI inflation starts rising.

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