Understanding the Nexus Between International Commodity Prices and Inflation in India: An Econometric Analysis

This research employed Vector Autoregressive (VAR) modelling to study global commodity price transmission to Indian inflation for the period 2001-2023. The results showed that an increase in global commodity prices created significant short-run inflationary pressure in the wholesale price index (WPI) of India. However, contrary to theory, the inclusion of the exchange rate in the model did not function as a strong buffer to cushion inflationary pass-through. Furthermore, monetary policy response of the Reserve Bank of India through repo rate changes was preemptive but transient, exerting only a subdued influence on inflation. The results underscored major constraints of conventional policy tools like monetary policy and exchange rate, suggesting re-consideration of the current macroeconomic stabilisation framework to combat externally driven inflationary pressures. Keywords: CRB index, inflation, repo rate, vector autoregressive model, wholesale price index. JEL Codes: F14, F62, G15, Q02.