Chart of the Day: When the inflation tables turn

Retail inflation in the US has surged to 9.01 percent, a figure normally attributed to inflation in capital-starved and growing emerging market economies. The commodity price whiplash triggered by the Russia-Ukraine war has resulted in a significant divergence of inflation between advanced economies and emerging economies. As the above chart shows, the pace of US inflation has outstripped that of India for the past ten months. At the heart of this divergence is the runaway rise in energy prices and the US is the third biggest importer of crude oil, behind India which is the second. Given the radically different position of the currencies of both countries, India faces an outsized impact on its external sector and domestic inflation from oil imports. However, the pass through of fuel prices to US pumps has driven inflation faster there as well. That said, prices pressures are broad based in the US as well as India. Post-pandemic demand surge has led to spikes in non-food and non-fuel inflation as well. Crude oil prices have come off sharply from record highs which is likely to have a favourable effect on inflation. It now remains to be seen whether prices fall faster in US or India.