Crude oil shock: 10% price spike can push inflation up 20 bps, says RBI research

A 10 % increase in global crude oil prices can increase 20 BPS points in the main inflation in India, according to a new research article published in the Reserve Bank bulletin in India 2025 July. The results emphasize the ongoing India vulnerability in oil shocks, despite its recent efforts to store its local impact.

The study, titled “Reconsidering Oil and Inflation Prices in India in India” carried out by RBI Sujata Kundu, Soumasree Tewari and Indranil Bhattachariya, assessing the inflationary effects of international crude prices on the Indian economy, especially in the descriptive period. The authors indicated that although inflationary pressure from oil was relatively contained, the effects remain statistically significant, especially after Russia-Ukraine opposed in 2022, global supply chains worsened.

The paper said: “Experimental estimates indicate that the rise in global crude oil prices by 10 percent may increase the main inflation in India by about 20 basis points on a contemporary basis.” These estimates reflect the immediate effect in the short term and emphasize the need to be cautious in the growing global energy market.

India is still highly dependent on oil imports, making its economy especially vulnerable to global energy shocks. Even with government interventions in the local fuel markets, including price covers and tax adjustments, the indirect effects of consumer prices remain inevitable.

RBI researchers highlighted the need for long -term procedures that exceed the temporary stores of immediate policy. The paper said: “The increase in dependency on importing oil requires measures not only to contain the indirect effects of local prices, but also to gradually move towards alternative sources of fuel.” He pointed out that moving towards renewable energy sources and clean energy alternatives can help isolate the economy in the long run.

The study is important as global oil prices rise, amid geopolitical instability and supply restrictions. As India aims to maintain inflation within the target range by 2-6 %, any increase in oil-led prices can constitute a new challenge to monetary policy.

Regardless of the link of oil enlargement, the RBI paper also highlighted the effectiveness of monetary policy in India in establishing inflation expectations. The July bulletin also indicated that despite these risks, inflation in India remained less than 4 % for five consecutive months until June 2025, with the help of contraction in the prices of food and flexible external essentials.

He has indicated that passing global food prices to local inflation is still limited, but flying materials such as grains and vegetables are still walking in the short term. The study also confirmed the role of supply aspect measures and strong insulating stockpiles in stabilizing food prices, and indicated an increase in the use of early warning systems to expect inflationary pressures. These visions are part of RBI’s ongoing efforts to enhance macroeconomic stability by analyzing data in a timely manner and coordinating policy.