Is it true that Indian markets are reacting to higher US inflation?

In a way that is true. For the month of October 2021, the US consumer inflation jumped to a 31-year high of 6.2%. These inflation levels were last seen in the US in the early 1990s at the peak of the Gulf crisis. This inflation spike has been on the back of surging food, gas and housing prices with core inflation going up in tandem with overall headline inflation. CPI inflation was at 5.4% in August and has moved still higher this month.

The big challenge to the US economy is that the high inflation levels were actually eroding the strong gains in wages in the US. This underlines that the cost push inflation, even in India, is not going away in a hurry. The whole problem is rising inflation and soon the Fed may have no choice but to hike interest rates in the US. If that happens, it is very likely that the RBI would also follow suit.