India's Inflation Likely Hit 5.4% in September as Oil Costs Bite

India's inflation is projected to have increased to 5.4% in September, compared to 4.82% the previous month, according to a Reuters survey of economists. The rise in inflation is attributed to higher oil prices and increased costs for energy and food products. The 41 economists surveyed by Reuters gave inflation forecasts ranging from 4.9% to 5.9%.

ANZ economist Dhiraj Nim noted that the rise in energy prices is likely spreading to other aspects of the Consumer Price Index (CPI), beyond just transportation. In response to the accelerating inflation, India's central bank raised key interest rates for the first time in four years on Wednesday. The Reserve Bank of India also indicated that rate cuts are unlikely in the near future, with the bank shifting its policy stance to "calibrated tightening," according to Deepali Bhargava, Regional Head of Research, Asia-Pacific at ING.

In September, the average price of Indian crude imports stood at $116.09 per barrel, and as of October, it has averaged over $120, reaching $120.06 per barrel. The Indian crude basket is a blend of a sweet-grade benchmark, Dated Brent, and the sour-grade benchmark of Oman and Dubai, imported by Indian refineries monthly. Additionally, global shipping costs are surging due to less efficient trade routes, longer voyages, and a shortage of tankers.

India's crude oil import bill has risen since the Iran war disrupted Middle Eastern oil supplies, driven up benchmark crude prices, and quadrupled freight rates. Furthermore, insurance costs for a single Strait of Hormuz voyage have reached unprecedented levels. India has been compelled to pay higher prices for Middle Eastern crude not only because of the spike in oil prices but also because of the surging costs associated with importing crude from the nearest region.