Page 558 - ES 2020-21_Volume-1-2 [28-01-21]

Prices and Inflation 185

Figure 21: One year ahead inflation expectations and current inflation

Source: IIM Ahmedabad; RBI, NSO
GLOBAL COMMODITy PRICES

5.30 The YoY growth in global commodity prices, except prices of precious metals and
fertilizers, saw a decline from their levels in December 2019, between January and April 2020
owing to COVID-19 induced restrictions around the world and consequent fall in demand for
these commodities after remaining subdued during 2019. The largest impact of COVID-19 has
been on energy prices driven by fall in crude oil prices. Energy prices have seen some rebound
since the pandemic owing to production cuts by OPEC+ countries (World Bank, 2020b), though
they continue to be below levels of the previous year. Agricultural prices remained more or less
stable during the period of pandemic induced restrictions. This may be attributed to the lower
income elasticity of demand for these commodities compared to other commodities (World
Bank, 2020a). Growth in prices of agricultural commodities, metals and minerals and fertilizers
have now returned to the positive territory (Figure 22). Edible oil prices have been a major
driving force in putting upward pressures on agriculture prices. Metal prices have risen owing
to higher industrial demand from China (World Bank, 2020b). The average growth in energy
index stood at (-) 35.1 per cent in 2020-21 (Apr-Dec) compared to (-) 14.7 per cent in 2019-20
(Apr-Dec). On the other hand, average growth in agriculture index was 5.2 per cent in 2020-21
(Apr-Dec) compared to (-) 3.2 per cent in 2019-20 (Apr-Dec). Precious metals saw a 28.9 per
cent growth in 2020-21 (Apr-Dec) compared to 12.5 per cent in 2019-20 (Apr-Dec).
5.31 Gold prices saw sharp spike in prices during 2020. Gold prices rose as investors turned to gold
as a safe haven investment amid COVID-19 induced economic uncertainties (Figure 23). Global
Economic Policy Uncertainty (GEPU) Index is constructed using information from newspaper
articles and proxies policy related economic uncertainty (Baker et al., 2016). From January 2020
onwards, gold prices have sharply increased with the sharp rise in the GEPU. In fact, compared to
other assets, gold had returns during the year that were considerably higher (Figure 24).