While, during 2010 and  4  BIS central bankers’ speeches  2011, global commodity prices had an adverse impact on domestic inflation, the depreciation of the Rupee more than offset the beneficial impact of modest softening of global commodity prices on domestic inflation in 2012. There is another important dimension of India’s external sector linkage, particularly towards explaining high non-food manufactured product inflation.
Analysis suggests that the passthrough from non-food international commodity prices to domestic raw material prices has increased in the recent years reflecting growing interconnectedness of domestic and global commodity markets. This trend is also corroborated by corporate finance data which show that the share of raw material costs as a percentage of both expenditure and sales has been rising.