Monday, May 16, 2011

Stat of the Day: India Inflation Peaks?

Interesting CNBC story on the inflation story in India. The good news is that India inflation dipped in April to 8.66 from an adjusted 9.04 in March. The bad news is that the February number was revised upward by 1.23 percentage points meaning that the April number could possibly be closer to 10 percent. The bizarre news is that the fears for higher inflation consist of a widely expected increase in state-set diesel prices.

Maybe its only bizarre to me that goods that have government subsidies would be counted at the subsidy rate and not the market rate. Or at least when factoring inflation, the government should set policy based on what the market rate would be. After all, oil prices have plummeted in May so if anything the country is looking backwards and not forward. Now thats not much of a surprise for India.

Emerging market stocks have been weak this year because of the higher inflation fears and rising interest rates, but the plummeting commodity prices should be bullish but somehow the focus remains in the wrong direction. Not one mention in the article about the lower oil prices.

The market should begin to factor this reality into higher stock prices, but it is concerning that the talk is of up to 75 more basis points of rate hikes. Its disturbing when the central bank or in this case The Reserve Bank of India is expected to continue raising rates even though the most recent 50 basis point rate hike hasn't even kicked in yet.

Its very clear from reading the inflation news that the world markets and especially emerging markets needed a reprieve from higher commodity prices. So with oil and copper down 15%, when do the deflation talks begin? Based on the details of the story, maybe its when people figure out that the input costs have actually dropped.



  • The wholesale price index the country's main inflation gauge, rose an annual 8.66  percent in April, above  the median forecast for an 8.48 percent rise in a Reuters poll and below an upwardly revised 9.04 percent in March.
  • The February figure was revised to 9.54 percent, 1.23 percentage points higher than the provisional figure. Some analysts said the high quantum of revision could mean April's revised reading could be closer to 10 percent.
  • Most economists in recent Reuters poll expect the central bank to raise rates by at least another 75 basis points in 2011. The central bank's next review is June 16.
  • The government may raise diesel prices by 3-4 rupees a litre as early as this month, and there are proposals to lift prices of kerosene and cooking gas, a government source said.
  • State-run oil refiners raised petrol prices by about 8.6 percent, or 5 rupees a liter ($0.11), from Sunday, a record increase that will fuel inflation in Asia's third-largest economy.



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