20 C
New York
Tuesday, September 27, 2022

Buy now


Input Prices Are Starting To Exert Pressure On Output Prices: RBI Paper

Higher energy prices, commodity prices, and supply chain shake-ups have pushed up the cost of inputs across the board in India, according to a research article in the Reserve Bank of India’s September bulletin.

Early signs indicate that pressures are mounting on output prices and firms in the manufacturing and services sector have started to pass on part of their elevated costs to customers, according to the article.

“Global supply chain disruptions due to war in Europe with crude oil prices hovering above $100 per barrel for almost six months during 2022 have further elevated the pass-through risks of the unprecedented input cost pressures,” the authors from the RBI’s Monetary Policy Department said in the paper.

A lukewarm demand environment kept output prices sticky over the past couple of years and resulted in a constant widening of the gap between input and output since mid-2020-21. But as demand revives, firms appear to be more comfortable passing on the burden of rising inputs.

In this regard, India’s experience with the current inflationary environment differs from that of advanced economies. Such economies have been able to transfer the large rises in input costs to customers allowing firms to protect their margins and ensure profitability, according to the article.

“In countries like the U.S., U.K., France and Spain, the rising trend in output-input price gap witnessed during 2020 has either stagnated or has begun its descent sometime around the last year reflecting the pass-through,” the article noted.

Generally, the article observes, input prices are reflected in the core component of the wholesale price index even though its correlation with core consumer price index inflation is pretty weak.

Input prices, therefore, only indirectly impact the core CPI which renders their impact somewhat subdued.

With the RBI saying it expects aggregate demand in the Indian economy to stay robust and expand as the country nears festive season, the pass-through of input costs might just make things dearer for customers.

“One needs to be watchful of the dynamic playing out between divergent forces—demand picking up; some softening in input prices in very recent months; and continuing global uncertainties—that could determine the impact of headline inflation,” the authors said.

Source link

Related Articles

Stay Connected

- Advertisement -spot_img

Latest Articles