Imported inflation
Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Beyond NCERT
Meaning
Imported inflation is inflation that comes into a country from abroad. It enters in two main ways. First, imported goods become dearer, for example crude oil or edible oils. Second, the domestic currency depreciates, meaning it loses value against foreign currencies, which makes every import cost more in rupees. It is a form of cost-push inflation because it raises firms' input costs.
Example
India imports over 85% of its crude oil needs. A global oil price rise, or a fall in the rupee, raises the cost of fuel, transport and fertiliser at home. Retail prices then rise across many goods. Imports are included in the CPI, so this shows up directly in headline inflation.
Don't confuse with
- Demand-pull inflation: it comes from too much domestic demand chasing too few goods, not from costlier imports.
Related concepts
- Demand-pull inflation
- Output gap
- Cost-push inflation
- Supply shock
- Wage-price spiral
- Greedflation
- Structural inflation
- Inflation expectations
- Anchoring of inflation expectations