10% Rise In Global Oil Price Can Push Inflation By 20 Basis Points: RBI Study

A new study by the Reserve Bank of India (RBI) has revealed that an increase of 10 per cent in world crude oil prices can result in India's headline inflation rising by 20 basis points. The paper is included in the central bank's July 2025 Bulletin and arrives at a time when global oil prices are volatile because of current geopolitical events and trends in world demand.

India, as a major importer of crude oil, is still responsive to the volatility in international oil markets. According to the study, despite some of the government actions that have been taken to contain the influence of the volatility of oil prices, the connection between oil and inflation still lingers. 

Post-Pandemic Demand And Global Tensions Contribute

The RBI document points out how the impact of movements in global oil prices has shifted in recent times, especially in the post-pandemic period. The economic rebound, as a result, was followed by increased oil demand, as supply chains continued to be disrupted by other incidents across the globe, such as the Russia-Ukraine war that started early in 2022.

According to the research, though the inflationary effect of oil prices has been fairly well contained at this time, it remains statistically significant. This indicates that fluctuations in international oil prices still affect the prices of goods and services locally, especially fuel, transport, and goods associated with it.

Government Actions Have Assisted, But Import Dependence Persists

The research recognises that government policy interventions have been successful in containing the effects of movements in international oil prices on domestic inflation. Examples are changes in excise duties and other taxation actions designed to protect consumers from direct price increases.

Yet, the paper authors also highlight that India's growing reliance on oil imports can remain a problem in the longer term. The report recommends the necessity of broader policies to better deal with the domestic effects of oil prices and, gradually, move toward alternative fuel sources.

Inflation Control Remains A Policy Priority

RBI has been making efforts to contain inflation through changes in its monetary policy. As of June 2025, India's headline inflation was below 4 per cent for the fifth month in a row, supported by soft food prices and robust supply-side measures.

The crude oil price still influences the level of overall inflation, according to research conducted, even though the inflation currently runs at a much lower level. RBI remains aligned with the global events in this regard in order to further pursue the inflation targeting approach.

Study Shows Global-Local Price Link

The findings are part of a research article published in RBI's July 2025 Bulletin. The study, conducted by RBI officials, looks at how international oil price movements continue to influence domestic inflation trends in India.

It analyses data from the post-pandemic era and highlights how global crude oil market changes, along with domestic fuel price policies, have influenced the course of inflation over time. The research also highlights the necessity for medium- and long-term measures to reduce exposure to international fuel price volatility.