Inflation Expectations went right!
Interestingly in my MSc. essay, I had observed that the direct impact of oil prices are negative on CPI but positive on WPI. This means that if oil prices dive, WPI would dive but the direct impact would have inflationary pressures on CPI. However, the net behaviour on CPI depends on the combined effect of WPI and oil. Further, I had observed that the protein prices (pulses) are the major channel through which oil prices impact CPI. Additionally, it was found that there exists a negative relationship between oil prices and protein prices which drives CPI upwards when oil crashes.
After I submitted my MSc. work, interestingly similar situations unfolded. Oil prices crashed, India went into lockdown and much-expected inflation to cool down. However, having written by essay, I was expecting inflation to rise as well, however, at first even it was quite counter-intuitive to me. As mentioned in livemint's article and I quote:
"Aditi Nair, principal economist at ICRA Ratings said the retail inflation rate posted a negative surprise, revealing an inflation rate well above expectations. "Today's print implies that retail inflation in June was higher than the level in March, when the lockdown was first imposed, challenging the view that demand destruction would cool inflation despite the supply-side hiccups," she added."
It has been further seen that the drive-in inflation has come from protein prices indeed, dominated by pulses. As per the data, June retail inflation came out to be 6.09% as against that in March of 5.84%. Although I am not sure what kind of models were used by the economists to predict but since the increase in inflation was missed, and those who had predicted did not predict such a large jump, it might, therefore, be fruitful to peek into the oil-related channels in their models as far as I think.
Click here to go to the blog page of my MSc work.
After I submitted my MSc. work, interestingly similar situations unfolded. Oil prices crashed, India went into lockdown and much-expected inflation to cool down. However, having written by essay, I was expecting inflation to rise as well, however, at first even it was quite counter-intuitive to me. As mentioned in livemint's article and I quote:
"Aditi Nair, principal economist at ICRA Ratings said the retail inflation rate posted a negative surprise, revealing an inflation rate well above expectations. "Today's print implies that retail inflation in June was higher than the level in March, when the lockdown was first imposed, challenging the view that demand destruction would cool inflation despite the supply-side hiccups," she added."
It has been further seen that the drive-in inflation has come from protein prices indeed, dominated by pulses. As per the data, June retail inflation came out to be 6.09% as against that in March of 5.84%. Although I am not sure what kind of models were used by the economists to predict but since the increase in inflation was missed, and those who had predicted did not predict such a large jump, it might, therefore, be fruitful to peek into the oil-related channels in their models as far as I think.
Click here to go to the blog page of my MSc work.
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