The Asian Development Bank (ADB) recently warned that India could face imported inflation as the rupee could depreciate amid the rise in interest rates in the West
Imported Inflation
It refers to the rise in the prices of goods and services in a country, caused by an increase in the price or the cost of imports into the country.
It is believed that a rise in input costs pushes producers to raise the price they charge from their local customers.
Causes
Depreciation of a Currency: When a country’s currency depreciates, people in the country will have to shell out more of their local currency to purchase the necessary foreign currency required to buy any foreign goods or services.
It effectively means that they will be paying more for anything that they import.
Rise in International Crude Oil Prices: It is due to a fall in oil output. It is expected to cause prices to rise across an economy which imports oil to produce goods and services.
Impact
Imported inflation can lead to higher prices for goods and services, which can reduce purchasing power and lead to a decrease in consumer spending.
It can slow down economic growth and lead to economic instability.
