NEW DELHI: India does need to be wary of imported inflation, especially from elevated global energy prices, according to the Economic Survey released on Monday.
In fact, the high inflation rate reported in the manufactured group in the WPI index is significantly attributable to "imported inflation" resulting from high prices of imported inputs, the Survey noted.
High freight costs and longer delivery times further exacerbated the price pressure on imported inputs, it said.
"While inflation in food items in India remained under control because of supply-side management, high global prices of manufacturing items have had an impact on the domestic prices, especially basic metals," the survey explains.
When the general price level rises in a country because of the rise in the prices of imported commodities, it is termed as imported inflation.
It cited the example of cotton. India is a major producer, consumer, and exporter of cotton. Therefore, the prices of domestic cotton and international prices are closely linked, says the report.
International cotton prices have been showing an upward trend since May 2020 and have reached levels higher than those witnessed in the last ten years.
Among metals, tin prices have surged by more than 33% in the first quarter, reaching a 10-year high in March 2021. Copper prices have also risen through the initial months of 2021 because of global uptick in demand.
Domestic inflation as measured through WPI of related items have been highly correlated with growth in the international prices of these commodities, said the report.
India also imports a substantial share of the edible oils it consumes. "Any change in international prices of palm oil gets transmitted into domestic prices," the report adds.
The country also imports most of the crude oil it uses. "The inflation in 'fuel and power' group of WPI was above 20% reflecting higher international petroleum prices," the survey says, adding, although the high WPI inflation is partly due to base effects that will even out, India does need to be wary of this imported inflation in particular.
The wholesale price-based inflation surged to more than a decade high of 14.23% in November 2021.