What is imported inflation?

While inflation is the commonly heard term in the Indian economics, imported inflation is not so pronouncedly heard and used. Nonethess, imported inflation casts a cascading effect on the inflation rate of the country. So what is imported inflation actually?

Imported inflation is the rise in the general price levels in an economy owing to an increase in the prices of imported commodities in the international markets. For instance, in the Indian context, any rise in the price of the country's imported goods and commodities including crude oil and gold, inflates the inflation rate. And such an inflation in turn is referred as imported inflation.

Furthermore, imported inflation is also the result of fluctuation and more specifically depreciation in the domestic currency against the dollar. For instance, as witnessed in the not so distant past, high order depreciation in the Indian currency which reached level as low as approximately 68 last year against the dollar also impacted the rate of inflation substantially as taking the instance of crude oil which is the major commodity imported by the country, depreciation in Indian rupee increased the corresponding cost of oil in rupee terms.

So, other than the factors influencing price rise in an economy or inflation ( To know about the 2 components of inflation i.e. Wholesale price index inflation or WPI and Consumer Price Index Inflation or CPI in detail click here), government together with the central bank of an economy, need to track the inflation i.e. resulting on account of an increase in the price of imported goods and commodities. As it impacts the overall inflation rate of an economy and keeping it in view, the central bank lowers or increases key policy rates, to keep inflation under check.

GoodReturns.in