The currency has weakened past the 93-per-dollar mark for the first time, declining about 3% since the conflict began, amplifying the impact of already high global prices. According to the Reserve Bank of India, a 5% depreciation in the rupee could push up inflation by roughly 35 basis points.
“If the conflict persists and commodity prices stay elevated, rupee depreciation will only add to future inflationary pressures,” said Sakshi Gupta, principal economist at HDFC Bank.
Rising input costs are already beginning to show up in corporate pricing. The input price index jumped to a near four-year high of 59.2 in March from 54.7 a month earlier, according to S&P Global Market Intelligence, while the output price index rose to a seven-month high of 54.9 – signalling that firms are passing on higher costs to consumer.
“The Middle East war has pushed up prices across a broad range of materials from aluminium to oil, whilst companies are being squeezed by their reluctance to fully pass these increases on to customers,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
Gaura Sengupta, chief economist at IDFC First Bank, said petrol and diesel prices are likely to rise in the near term, directly feeding into headline inflation. If crude oil averages around $90 a barrel, retail inflation could edge up to about 4.8%, factoring in both direct and second-round effects. “With strong domestic demand, pass-through is likely to happen,” she said.