IMPORTED INFLATION -
ECONOMY
News: Imported inflation
What's in the news?
●
The Asian Development Bank recently warned that
India could face imported inflation as the rupee could depreciate amid the rise
in interest rates in the West.
Imported Inflation:
●
Imported inflation is a general and sustainable price increase due to an increase in the costs
of imported products.
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This price increase concerns the price of raw
materials and all imported products or services used by companies in a country.
●
Imported inflation is also referred to as cost inflation.
Factors causing Imported
Inflation:
1. Exchange Rates:
●
The most significant driver of imported inflation
is fluctuations in exchange rates.
●
The more the currency depreciates on the foreign
exchange market, the higher the price of imports.
●
Effectively, more money is needed to buy goods and
services outside the country.
2. Commodity Prices:
●
Many countries, particularly smaller countries, are
highly dependent on imported commodities like oil, metals, and agricultural products.
●
When commodity prices rise globally, it directly
impacts the cost of imports and can lead to higher inflation in the importing
country.
3. Trade Policies and
Global Supply-Chains:
●
Changes in trade policies, such as tariffs and
quotas, can influence the cost of imported goods.
4. Transportation Costs:
●
Fluctuations in transportation costs, influenced by
factors like fuel prices and logistical challenges, can affect the final cost
of imported goods.
Effects of Imported
Inflation:
●
With imported inflation, production costs are higher for companies. These companies most
often reflect this increase in the selling price of the goods and services
sold.
●
As a result, prices
within the country rise.