Vantage | Global inflation is cooling and India has a hand in it

Yesterday, the United Kingdom released its inflation figures, marking a positive change in a trend that has been troubling for some time. Inflation in the UK has dropped to 4.6 per cent, the lowest in the past two years. However, it's not just the UK experiencing this shift; the United States and the Eurozone are also witnessing a cooling off in inflation rates, with figures at 3.2 per cent and around 3 per cent, respectively.

The sudden turnaround in global inflation can be attributed to several factors. The impact of the COVID-19 pandemic, unprecedented government stimulus packages and the Russia-Ukraine war collectively drove up prices, creating an inflationary environment.

Central banks' response

While central banks are currently content with the recent drop in inflation rates, caution prevails. Over the past two years, central banks globally adopted a hawkish approach, raising interest rates to curb inflation. Despite being a divisive strategy at the time, it appears to have worked effectively against even the most stubborn inflation rates.

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India's role in stabilising oil prices

External Affairs Minister S Jaishankar claims that the world has India to thank for the recent stability in oil prices. Despite sanctions, India continued to purchase oil from Russia. Jaishankar argues that had India not done so, oil prices would have risen, leading to potential conflicts between New Delhi and Europe over suppliers and driving prices even higher.

India, as the third-largest crude consumer globally after the United States and China, played a pivotal role in maintaining stability in oil prices. The decision to buy oil from Russia ensured a steady supply and prevented a scenario where increased demand would outstrip supply, causing prices to soar.

Global South's collective influence

It wasn't just India; the entire Global South protected its interests by maintaining a steady demand for oil. This collective effort contributed significantly to the stabilization of oil prices, underscoring the importance of strategic decision-making on a global scale.

While the recent drop in inflation rates across major economies is a positive sign, it's essential to remain cautious. Central banks, while relieved, are not overly optimistic. The global response to inflation, coupled with India's strategic actions in the oil market, highlights the interconnectedness of economies and the collaborative efforts required to address economic challenges on a global scale.

Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.

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