Concerned over the rising inflation, the RBI Governor Raghuram Rajan has stated that appropriate food management will bring down prices and the next few quarters would be engaged in combating inflation. WPI inflation rose to five month high at 6.01% y-o-y in the month of May as against 5.20% in April due to the high prices of food products and fuel. The inflation in food articles increased by 9.50% y-o-y in May compared to 8.64% in the previous month.
Referring to Iraq crisis threatening to spur oil prices higher and push inflation up, the Governor stated that India has enough foreign exchange reserves and is better prepared to deal with any fallout. By adding further, the governor has said that prevailing crisis in Iraq is an area of concern and therefore central bank is closely watching the situation. The Iraq crisis has emerged when the new government is gearing up to formulate its first Budget amid a slowing economy and high inflation, particularly in the food articles.
Iraq is India's second largest crude oil supplier behind Saudi Arabia. It met over 13% of India's oil need in 2013-14, supplying about 25.1 million tonnes (MT) of oil. The same level of imports was projected to be maintained in current fiscal. However, global crude oil prices have risen in response to the ongoing unrest in Iraq. India imports close to 2 million barrels/day of crude oil and the price of the Indian crude oil basket rose to over $110.54/barrel now from $106.88/barrel at the beginning of the month.