Is Inflation and depreciation of currency related?
Good question. In a way yes – this is more prominent when it comes to Rupee vs US $. One of the main components of taday’s inflation is the crude and crude is always quoted in US $ – very close to $140 as it stands today. Assuming inflation (which as everyone says is the spending requirement) is at 11.05% today, if the Rupee appreciates from 42 Rs a USD to let us say 40 a USD, the crude price remaining the same at $140, we pay only 140 * 40 in stead of 140 * 42 that we used to pay thereby containing inflation in this segment. Some of the commodities are also in the same style.
