Global Demand Slowdown Promises Relief for Fuel Inflation

A new Bank of Baroda report suggests easing fuel inflation in India due to weak demand in the US and China. Brent crude prices have decreased, indicating potential relief in the future. Despite the overall decline, some mineral oil prices surged, highlighting complex international oil market trends.

A recent report from the Bank of Baroda forecasts a slowdown in fuel inflation in India, driven by weak demand in the United States and China. Brent crude oil prices have already fallen by 0.8 percent this December, which could alleviate inflationary pressure in the near term if the trend persists.

The study notes that the 'higher for longer' interest rate scenario in the US, coupled with weak consumption data from China, suppresses the likelihood of a demand resurgence. Fuel and power inflation remained steady at negative 5.8 percent in November 2024, mirroring October's figures. Meanwhile, subcategory prices such as furnace oil and aviation turbine fuel witnessed notable increases.

Globally, Brent crude prices dropped by 10.5 percent year-on-year in November, less steep than the 15 percent decline seen in October. This slower rate of decline has contributed to domestic fuel inflation pressure, particularly on ATF, kerosene, and furnace oil. The falling prices of basic metals like aluminum and zinc have also driven higher inflation for manufactured goods. Experts suggest that ongoing trends in mineral oils and electricity will continue to impact fuel inflation.

(With inputs from agencies.)