Inflation and Rising oil prices

Inflation and Rising oil prices

Subject: Economy

Context: At an event organized by the International Energy Agency (IEA) the Petroleum minister criticized major oil producing countries for cutting oil production which has led to inflation.

Concept:

• India currently imports 85% of its oil needs. With the rise in crude oil price its import bill rises significantly.
• This rise leads to inflationary pressure on the economy as a whole as oil as the source of energy is almost significant for all sectors like transport.
• This is also leading to contraction in economy as the inflationary pressure impacts demand as well and it is worrying trend in post-Covid scenario.
• Current rise is fueled by cuts over and above previously-announced levels but also added additional voluntary cut.

About inflation

• Inflation is defined as a situation where there is sustained, unchecked increase in the general price level and a fall in the purchasing power of money.
• Inflation is measured in India using CPI (released by NSO).It is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy is called consumer price index.
• RBI goes for inflation targeting under its monetary policy Review with 4% being set as the Consumer Price Index (CPI) inflation target for the period from August 5, 2016, to March 31, 2021, with the upper tolerance limit of 6% and the lower tolerance limit of 2%.