Headwinds from US inflation: Costly imports, flight of foreign investors among major risks

With the United States recording a 40-year high inflation in June this year, India will also face the heat. India's costly imports and inflation in trade partner countries puts it at risk of facing imported inflation. .

Consumer prices in many parts of the world are on the rise and India, too, is expected to face headwinds. Considering that India imports heavily, inflation in trade partner countries puts it at risk of facing imported inflation.

The U.S. recorded 40-year high inflation in June 2022 and India is also set to feel the heat. India imported nearly eight per cent of its energy requirements from the U.S. last year.

India’s dependence on the U.S. for its energy needs has increased in the last five years. The U.S accounted for only three per cent of India’s energy imports in 2017-18.

“India is being impacted by the global inflation crisis, reflecting the materialising of geopolitical risks. Although it is largely driven by food and fuel supply disruptions and bottlenecks, mending supply always takes time,” The Reserve Bank of India said. The central bank added that the current situation of global inflation is one of the most severe food and en­ergy crises in recent history that now threat­ens the most vulnerable across the globe.

Though the inflation in India is above the RBI’s comfort band of two to six per cent in the last six months, the situation is less dire than in many other countries. In Belgium, the U.S., and the U.K., inflation is at a 40-year high. In the Eurozone, inflation is at a lifetime high, while it is at a 20-year high in Mexico.

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Another factor besides energy prices is the rise in food prices. The Food and Agriculture Organization's food index is at its highest level now.