DNA Money Edit: Oil price, rupee to swing India’s fortunes

Christopher Wood, managing director and equity strategist at CLSA, said the biggest risk for India is not the upcoming state and general elections but the prospect of another oil price spurt. For the time being, however, crude oil prices posted the deepest plunge in more than three years in the international market. Brent crude has softened to $65 a barrel, making it a 30% drop in 12 straight days, driven by worries over rising oil production in the US and the Middle-East and weakening demand from developing countries. As a result, the rupee has risen to 72 per dollar.

Interestingly, wholesale price index (WPI)-based inflation in October has jumped to 5.28% amid a spike in prices of petrol and diesel and manufacturing products, despite a fall in food prices. Prices of manufacturing products, having a 64% weight in WPI, have registered a 4.49% gain year-on-year.

What’s heartening is that food articles saw a price drop with deflation at 1.49% in October with vegetable prices falling a sharp 18.65% as compared to 3.83% in the previous month. Since the effects of crude and rupee are more pronounced on WPI inflation, the input price pressures in the economy could be passed on to the consumers. If the recent softening in crude and rupee continues, the effect on WPI will be visible with some lag.