The outlook for oil prices in the near term appear highly uncertain. Secondly, world primary commodity prices have also increased in 2003. These trends, along with revival of growth and falling excess capacities in several advanced economies have brought about a noticeable shift in the outlook for prices.
The fear of deflation in advanced economies has been replaced by a possible upward pressure, led by increases in commodity prices. No doubt, these international developments enhance the probability of international transmission of inflation. At the same time, there are three favourable factors to counter these recent adverse global developments.