Oil price spikes haven't derailed India's GDP or inflation long-term: BoB report
Historical analysis of crude oil price shocks over the past 54 years shows they do not permanently alter India's GDP or inflation trajectory, with structural relationships remaining weak over the long run, according to a report released on Wednesday, 13 May 2025. The findings come from Bank of Baroda (BoB), which applied an autoregressive distributed lag (ARDL) model to assess the long-run relationship between crude prices, GDP, CPI (Consumer Price Index), and WPI (Wholesale Price Index).
Key Findings from the Bank of Baroda Analysis
The Bank of Baroda report found that crude price changes over the last 54 years do not establish any long-run relationship with India's output or price levels. Over this period, crude prices have risen more than 20 per cent in 18 separate episodes, while the current episode has seen a sharper 39.7 per cent jump — among the steeper spikes on record.
Historically, the peak of an oil price shock has lasted approximately 6–7 months, and such shocks tend to be concentrated in specific years rather than broad-based. The period FY07–FY16 was identified as unusually volatile in this regard.
Short-Run vs Long-Run Impact on Prices
While long-run correlations are weak, the report noted that short-run correlations between oil prices and wholesale prices — particularly WPI-Fuel — are strong. However, the link to CPI is considerably weaker, because fuel carries a lower weight in the consumer price basket and governments frequently absorb retail fuel shocks through subsidies or delayed price pass-throughs.
This distinction matters for monetary policy: a spike that registers sharply in WPI may not immediately feed into headline retail inflation, giving policymakers a degree of buffer before intervention is required.
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