Even as headline inflation rate has come down, imported inflation on account of weakening rupee and led by gold and silver remains a cause of anxiety. This has also pushed core Inflation (subtracting volatile products such as fuel and food from headline inflation) rate to a 16-month high of 4.3 per cent in February.
Imported inflation refers to price movement in goods that are imported in large quantity. These include gold and silver, crude oil, edible oil (mainly crude palm oil) and pulses (mainly Arahar/Tur) beside some other items. As rupee has depreciated more than 2 per cent against US dollar in January-February, it has affected prices of imported items in the domestic market and has had a consequent impact on retail inflation rate based on Consumer Price Index. The only comfort factor is deflation in petrol and diesel prices.
A research report by SBI said the share of imported component surged to over 31 per cent in February against 1.3 per cent in June 2024.
“The rise has been on account increase in precious metal prices, oils and fats and chemical products,” it said. Further, it noted that the contribution of energy prices to imported inflation remains negative and in declining in absolute amount. “The pass through of rupee depreciation will be visible in coming months which will further push the CPI inflation up,” it said.
Echoing the sentiment, a note by Crisil found that gold prices surged around 24 per cent in this fiscal as against over 15 per cent last fiscal. Global uncertainty in the past few months has increased demand for gold as it is seen as a safe asset. “Inflation volatility in gold (as measured by standard deviation) was higher than food and fuel between fiscals 2015 and 2025,” it said.
Inflation at 7-month low
Headline inflation-based rate on Consumer Price Index (CPI) slipped to a 7-month low of 3.6 per cent in February. However, experts foresee the rate may breaching 4 per cent again in March. Core inflation has already started picking up. A research note by QuantEco said that core CPI inflation moved higher to 4.3 per cent in February against 3.9 per cent in January. This was predominantly led by personal care and effects sub-category, within which gold, silver and other ornament prices registered sizeable upside.
The impact of escalation in global precious metal prices has been amplified by rupee depreciation in an environment of heightened global uncertainty due to Trump’s tariff tantrums. “February core inflation marked the first time in past 20 months of surpassing the headline inflation sizeably,” it said.
There is no let-up in either core inflation or imported inflation. Vivek Rathi, National Director (Research) at Knight Frank India, said that while food inflation significantly eased in February leading to an overall deceleration in the CPI, inflationary concerns remain persistent.
“We anticipate that inflationary pressures will continue in the coming months. The sharp depreciation of the rupee is increasing import costs, which will eventually be passed on to consumers, making consumer goods more expensive,” he said.
