Rupee's Fall Fuels Imported Inflation Fears

India is bracing for a surge in imported inflation as the Indian rupee depreciates by nearly 5% against the US dollar in 2025. This currency devaluation is expected to drive up the cost of essential imports like crude oil, gold, and edible oils, directly impacting consumer prices. Experts predict that the effects will become evident in wholesale and retail prices within months, affecting sectors from automobiles to daily essentials.

The rising cost of imported goods is already a concern, with the imported inflation component of the CPI basket reaching 1.6%, primarily due to gold and oils. The upcoming restructuring of India's Consumer Price Index (CPI) is also anticipated to alter inflation dynamics. Increased weightage for imported raw materials and electronics could amplify the impact of currency depreciation, making imported inflation a key driver in early 2026.

However, potential interventions like GST rate rationalization could mitigate some of these inflationary pressures. Analysts suggest that while rupee depreciation will inevitably influence inflation, the impact might be cushioned by other economic adjustments. The moderation seen in core inflation, despite record highs in gold and silver prices, offers a glimpse of this moderating effect.