Home > Business > Business Headline > Report
Global slowdown to check prices
Mamata Singh in New Delhi |
March 19, 2003 13:19 IST
Although most economists are not hopeful about a quick end to the situation in Iraq, there is no consensus on the expected impact on inflation levels.
The estimates for wholesale price index (WPI)-based inflation levels in 2003-04 range from 5 per cent to 7 per cent.
"Even in the case of a prolonged war, oil prices are unlikely to go up substantially because much of the impact has been factored in. Most of the stocking has already taken place," Pronab Sen, adviser to the Planning Commission, said.
There is need to worry only if there is major damage caused to oil installations, Sen feels.
"The war may be short, but the associated confusion will continue for some time," says Saumitra Chaudhuri, economic adviser to the Investment Information and Credit Rating Agency.
While it has the potential to raise inflation, the overall inflation levels will not go up vastly beyond 5 per cent because of the softening bias of the slowdown in the world economy.
Since we are likely to see a further slowdown in the world economy, demand for oil will be subdued and will impart a softening bias to oil prices.
The sluggish world economy will lead to a fall in prices of all commodities, which is also likely to push down domestic prices, says Sen, adding that inflation will remain at around the 5 per cent mark in the next financial year.
The real cause for worry will be the impact on the real economy.
"If the uncertainty persists, demand for non-essentials in the world economy will dip, which will have an impact on the trade performance of the country," he added.
There are those, however, who expect inflation to go up.
"While the extent of rise in oil prices will depend on several factors, the government may decide to pass the hike on to the consumers if it is marginal. In such a situation, the hike will have a cascading impact on the cost of transport and on manufacturing costs, both of which will lead to higher inflation," says B B Bhattacharya of the Institute of Economic Growth.
However, if the price rise is too high to be passed on to consumers, the government may have to cut duties on oil prices.
Powered by ![](http://www.rediff.com/money/pix/bs.jpg)