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Current Affairs

Imported inflation

Date: 09 September 2019 Tags: Basics of Economics

Issue

The Indian rupee breached the 72-a-dollar mark last week, due to weak local and global economic indicators. The weakening of the domestic currency in the past two months has renewed concerns of a return of imported inflation.

 

Imported Inflation

When the general price level rises in a country due to the rise in prices of imported commodities like petroleum, gold , fertilisers etc , inflation is termed imported. Inflation may also rise due to depreciation of the domestic currency, which pushes up the rupee cost of imported items.

 

Largest contributors to Indian imports

  • Petroleum and related products

  • Precious stones

  • Organic chemicals

  • Vegetable oil

  • Plastics

Details

  • India is a net importer on economic front.  If the rupee depreciation is sustained, there will be an impact on inflation.

  • Imported inflation has sustained  mainly through the fuel component. Any sustained increase in oil prices past the $65-per-barrel mark can be a concern. The price of gold, another key contributor to India’s imports, is hovering at $1540 an ounce.This can be a concern too.

  • The rupee is among the worst performing Asian currencies and has depreciated around 2.72% this year. Analysts believe that  rupee to be range-bound around 71-73 per dollar in the near term. This could elevate the problem of inflation.

Way ahead

  • The experts are have not pressed the panic button on imported inflation yet but a fragile global economy and trade tensions require a close watch on this indicator.

  • India’s Current Account Deficit is below 2% and hence India’s external position is expected to remain manageable.