Understanding the Nexus Between International Commodity Prices and Inflation in India: An Econometric Analysis
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Author: Mintu Adhikary and Soumitra Sarkar
Author Address: Assistant Professor, Department of Commerce, Ananda Chandra College of Commerce, Jalpaiguri-735101(West Bengal), Associate Professor, Department of Commerce, University of North Bengal, Raja Rammohunpur, Darjeeling District-734013 (West Bengal)
Keywords: CRB index, inflation, repo rate, vector autoregressive model, wholesale price index.
JEL Codes: F14, F62, G15, Q02.
Abstract
This research employed Vector Autoregressive (VAR) modelling to study global commodity price transmission to Indian inflation for the period 2001-2023. The results showed that an increase in global commodity prices created significant short-run inflationary pressure in the wholesale price index (WPI) of India. However, contrary to theory, the inclusion of the exchange rate in the model did not function as a strong buffer to cushion inflationary pass-through. Furthermore, monetary policy response of the Reserve Bank of India through repo rate changes was preemptive but transient, exerting only a subdued influence on inflation. The results underscored major constraints of conventional policy tools like monetary policy and exchange rate, suggesting re-consideration of the current macroeconomic stabilisation framework to combat externally driven inflationary pressures.
Description
Indian J Econ Dev, 2025, 21(3), 447-456
https://doi.org/10.35716/IJED-23263