Oil Volatility and El Nino to Pressure Imported Commodities, WPI

The global oil price volatility and strengthening El Nino effects during August-September are expected to put pressure on imported commodities, food prices, and headline Wholesale Price Index (WPI), according to economists. The Bank of Baroda's Sonal Badhan stated that the chances of a peace deal between the US and Iran diminishing and key waterways remaining under threat will lead to increased oil price volatility.

This volatility in oil prices is expected to result in higher insurance costs, which will add to the total freight cost, putting upward pressure on imported commodities. Additionally, the effect of El Nino is expected to intensify during August-September, maintaining pressure on food inflation and headline WPI.

The headline WPI was 9.8 per cent in July, with all major group heads - including food, fuel, and manufactured products - contributing to the elevated inflation print. Food inflation remains a significant driver, with fruits, milk, eggs, and meat products exhibiting upward pressures. Within fuel inflation, the mineral oil index is on the higher side, with crude petroleum, natural gas, ATF, LPG, and lube oils all rising notably.