Imported inflation increased to 6.49% in March, up from 6.35% in February, amid ongoing exchange rate fluctuations and external shocks such as supply chain disruptions, according to the latest State Bank of India (SBI) Ecowrap report.
The imported component of generalised price pressures, which has a weight of 21.84% in the Consumer Price Index (CPI) basket, saw its weighted contribution to overall headline inflation rise slightly by two basis points to 1.43% in March. This pushed the share of imported inflation in total CPI inflation to 43%, highlighting its growing influence on domestic price pressures.
Rise in import inflation
The rise in imported inflation coincides with a modest uptick in overall CPI inflation to 3.40% in March from 3.21% in February, the third consecutive monthly increase under the revised 2024 base year series.
State-level data reveals significant divergence. Imported inflation crossed the 12% mark in Telangana, while it hovered around 7.5% in states including Kerala, Uttar Pradesh, Tamil Nadu, and Andhra Pradesh. In contrast, only Goa and Delhi recorded imported inflation below the overall headline CPI level for their respective regions.
The SBI Research team links the upward pressure on imported inflation to heightened global volatility, particularly from tensions in West Asia.
Recent threats related to maritime trade routes and potential disruptions in energy supply chains have added to concerns. The report notes that badly mediated talks in Islamabad and associated geopolitical developments have once again stoked fears of higher pressure on energy prices and international supply lines.
“The tacit move of US seems to be multi fold, we believe; forcing Asian majors (to pressurize Tehran to come to deal table), nudging NATO to reconsider its approach should the aggression reach another territory and enabling select oil behemoths to have a larger say in the alternate supply chains that may continue even when conflict is amicably resolved,” the report states.
FPI outflows
FPI outflows of approximately $6.9 billion in recent days, combined with rupee volatility, further underscore the challenges. The analysis stated that structural reforms anchoring the Balance of Payments (BoP) will be more effective in stabilizing the rupee than short-term measures.
The report maintains a cautious outlook, warning that volatility fears may continue to plague imported inflation. However, it projects that interest rates are likely to stay lower for longer amid contained domestic pressures, including expectations of limited food inflation impact even with a forecasted below-normal monsoon.