Inflation Dynamics in India: Unraveling the Role of Fiscal Deficit, Industrial Production, and Oil Prices

Inflation Dynamics in India: Unraveling the Role of Fiscal Deficit, Industrial Production, and Oil Prices | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Inflation Dynamics in India: Unraveling the Role of Fiscal Deficit, Industrial Production, and Oil Prices Shadab Mohd Khan, Somi Waseem Zaidi, Rahul Dhanda, Syed Mahey Alam This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8135009/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study examines the determinants of consumer inflation in India using monthly data from January 2013 to March 2025. Focusing on key macroeconomic drivers, namely fiscal deficit (FD), industrial production (IIP), and crude oil prices (OIL), the analysis employs Johansen Cointegration and Granger Causality tests to explore both long-run and short-run relationships. The Johansen test identifies two cointegrating equations, indicating a long-run equilibrium relationship among inflation and its determinants, while the Granger Causality results reveal significant bidirectional and unidirectional causality patterns between inflation and the selected variables. Specifically, fiscal deficit and industrial production exert substantial long-term influence on consumer inflation, while oil price fluctuations affect inflation through imported cost pressures. The findings underscore the multidimensional nature of inflation in India, shaped by both domestic policy and external factors. The study offers important policy implications, including the need for fiscal prudence, industrial capacity strengthening, and energy diversification to manage inflation effectively. These results contribute to a deeper understanding of inflation dynamics and provide guidance for macroeconomic policy formulation in India. Macroeconomics Oil Prices Inflation Fiscal Deficit cointegration causality Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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