Imported inflation

Syllabus: GS-III, Subject: Economy, Topic: Inflation, Issue: Imported inflation

Context: Asian Development Bank warned that India could face imported inflation as the rupee could depreciate amid the rise in interest rates in the West.

Imported Inflation:

  • Occurs when the prices of goods and services in a country rise due to increased costs of imports.

Factors responsible for imported inflation:

  • Currency depreciation as it makes imports more expensive.
  • Higher import costs, such as rising crude oil prices.

Other issues

  • Critics argue that costs do not directly determine prices; instead, it is the prices consumers are willing to pay that influence costs.
  • Value is imputed from final consumer goods to inputs, shaping the pricing dynamics.
  • Even currency depreciation reflects changes in nominal demand rather than directly causing input costs to rise.
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