Cheers!! Inflation down to single digit - November 2008

The inflation rate fell sharply to a near six-month low of 8.98% for the week ended November 1, a drop of almost 4% from its August peak.

The decline is due to less demand in the market for the commodities.The decline, helped by a steep drop in prices of some petroleum products and metals, will provide a welcome relief to the central government reeling under a raft of bad news on the economic front from falling exports and a drop in tax collections. Politically, this could help the government ahead of key state elections later this month.

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Inflation as measured by the wholesale price index (WPI) — the most watched inflation measure — dropped 1.74% from 10.72% in the preceding week, official data from the Office of the Economic Advisor in the ministry of commerce and industry showed. It hit a peak of 12.91% in early August, but still remains more than double the 3.35% inflation seen in the same week last year.

“I was surprised by the quantum of fall in the fuel index. After consolidating around this level for coming weeks, I expect the inflation number to drop to the 8% territory by end-November,” said ICRA economist Saumitra Chaudhari and a member of the prime minister’s economic advisory council.

The fall in fuel prices, especially those which are not government-controlled, is expected to have a positive impact for the manufacturing sector, going forward since fuel is a key input cost for industry. For instance, the cost of jet fuel comprises almost 40% of the operational cost of an airline.

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Food prices inched up marginally during the period, rising 0.1%, but analysts expected the food articles index to move down in coming weeks, given the forecasts for a robust winter harvest.

Crisil principal economist DK Joshi said that the slowdown in the economy meant that both demand-supply side pressures were easing and inflation would not emerge as a major concern until the overall economic growth revived.

We can also get a cut in fuel prices as government is thinking about a fuel price cut. It may be noted that Crude oil prices have come down to US$ 58 level when compared to $ 147 levels few months back. so more drop in inflation is predicted by me in coming future due to possible fuel price cut by indian government.

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- with extracts from economictimes.com

Govt taking steps to tame inflation - Finance Ministry

The federal government is taking steps to tame inflation that was mainly driven by high commodity prices, a finance ministry statement said on Tuesday.India's wholesale price index rose to 13-year high of 11.42 per cent in mid-June, after the government raised retail fuel prices by 10 per cent last month. "Though this is the highest inflation in the last 13 years, it is largely commodity centric. Government is taking measures to moderate the inflationary pressure," the statement said, without specifying.

Reeling out data, the ministry said around 60 per cent of the increase in the prices of primary articles was accounted for by five commodities - iron ore, cotton, milk, fish and oranges. Even in the manufacturing sector, nearly 60 per cent of the increase was accounted for by eight products, six of which belong to the category of iron and steel products.

Last month, the central bank raised its key lending rate twice, first by 25 basis points and again by 50 basis points, to rein in inflation

Inflation to hit Indian Inc's growth plans - report

The 13-year-record inflation figures were announced on a day when Hindalco Industries announced its plan to retire loans taken to finance the Novelis acquisition. The Aditya Birla flagship company, which has about $3.03 billion as debt because of a bridge loan taken to fund the acquisition, will be tapping the market soon to meet the bridge payout.

“As long as we can pass on the cost to the market, it is ok,” managing director Debu Bhattacharya told reporters on Friday. “If we can’t, then it will be bad.” Inflation rate surged to a 13-year-high due to high crude and commodity prices, putting a question mark on growth estimates and on the ability of the Indian market to absorb any further increase in input costs.

“It’s (inflation) very unfortunate and certainly a thing that we can do without,” said Tata Sons’ finance director Ishaat Hussain. “But it has been driven by high oil and commodity prices, largely on account of external factors. It will require measures which will impact growth. Borrowing will become costlier and growth momentum will be affected.”

Indian companies, large and small, have drawn up large plans to expand capacities. Since borrowing will become costlier, the future of such expansion plans looks uncertain. However, the infrastructure sector may not be affected as deferring such projects would be even costlier.
India is scheduled to spend $500 billion to develop various infrastructure projects. B Hariharan, group finance director of the Gautam Thapar-controlled Ballarpur Industries, says “The high inflation will slow down the manufacturing sector. Although expansion projects will be affected, those that will be funded by domestic debt will be hard hit, while companies depending on foreign loans may be relatively better off,” he added.

On Thursday, KPMG said India would likely see the largest global investment in the manufacturing sector, with about 25% of large global corporates expected to invest in the country. Investment in other sectors such as in industrial products, will also be large, with India likely to displace the US to gain the second rank after China, said the report, which was based on a survey of 300 corporate investment strategists from 15 economies

June 13 - Inflation soars to 8.75% on rising prices

Surging food and fuel prices further pushed up inflation to 8.75 per cent for the week ended May 31 from 8.24 per cent in the previous week, its highest in 7 years. Inflation may go beyond a 13-year high of 9 per cent as a result of the steepest-ever hike in petroleum prices, analysts said. "It (inflation) could cross 9 per cent in the near term owing to the hike in petrol and diesel prices," HDFC Bank chief economist Abheek Barua told reporters recently.

In a bid to curb inflation, the Reserve Bank India on Wednesday hiked the repo rate — the rate at which banks borrow from RBI — by a quarter point, from 7.75 per cent to 8 per cent, giving a clear signal that for it inflation is a bigger priority than growth. It may not tame inflation in a hurry, but will discourage spending over a period of time, as banks pass on their higher cost of funds to borrowers. But all is not over yet.

For, a slim majority of economists now expect the RBI to raise its key lending rate once more in 2008 after this week’ssurprise 25 basis point increase to contain inflation expectations, a media poll has showed. Many also expect the RBI to raise its cash reserve ratio (CRR), the main policy instrument used over the past 18 months, by 25 to 100 basis points in coming months to clamp down on inflation-stoking surplus cash.

The government, under pressure to contain prices ahead of state polls this year and national elections due by next year, has also cut import duties on edible oil, curbed rice exports and forced steel and cement companies to cut prices.