Rupee impact on inflation unlikely to be significant
rupee is unlikely to impact inflation significantly unless the currency falls further beyond the 84 to a dollar level, say economists.
“As per RBI estimates, a 5% depreciation in rupee can increase headline inflation by 35 basis points. Hence, it would require a significant movement in INR for it to have an impact on inflation,” said Gaura Sengupta, economist, IDFC First Bank.
India’s inflation declined below the 5% mark for the first time in four months in October, according to data released earlier this week.
But it is likely to climb back again if onion prices remain high. Food inflation has remained over 6% level.
Core inflation declined to 4.2% in October.
However, economists contend that the rupee depreciation does add another dimension to price pressures, with risks from commodity prices rising due to geopolitical tensions and uneven monsoon.
“If rupee depreciates further, then it is likely to put pressure on input prices,” said Sunil Kumar Sinha, principal economist, Ind-Ra, citing that input price pressures due to higher commodity prices led to inflation rising to high levels during 2021-22 and higher levels of core inflation.
Economists expect retail inflation to rise closer to 6% within the next couple of months.
Onion inflation had risen to 42% in October but was countered by a 43.9% decline in tomato prices relative to the previous year and a 17.7% decline in potato prices.
Average retail prices on November 15 were 78.6% higher sequentially and 87.6% higher compared with the previous year. Onions have a 0.6% weight in the inflation basket.
Although rupee has depreciated 0.2% against the dollar since the start of the year, further weakness could cause concern.
