Inflation at the crossroads: rupee bites, seasonal factor aids

Headline inflation based on the Wholesale Price Index may have started to ease a bit, fuelling hopes that it will remain benign through 2012. But the depreciating rupee could well undo all the gains by pushing up the so-called ‘imported component’ of inflation. The worms are turning

Headline inflation based on the Wholesale Price Index may have started to ease a bit, fuelling hopes that it will remain benign through 2012. But the depreciating rupee could well undo all the gains by pushing up the so-called ‘imported component’ of inflation.

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Imported inflation (inflation due to an increase in the price of imports) has risen to 46% in the last six months from 35% due to the depreciating rupee.The fall of the rupee has significantly pushed up import costs in the last few months. The global crude oil price (brent), for example, at above $100 per barrel, has put on an additional Rs 1,000 per barrel in this period due to the plummeting rupee.

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The seasonal impact and favourable base effect – the level of inflation in the corresponding period of the previous year — have led to softening prices.

“Inflation will soften primarily due to seasonal impact and favourable base effect provided all factors remain unchanged. In case of a sudden spurt in global commodity prices, inflation could rise again,” Soumya Kanti Ghosh, director and head (economics & research) Ficci said.