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.

       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.