“Government would act strongly against companies not controlling prices”, sounds like a statement made in a pre-liberalization era against erring money lenders. Make no mistakes, these are the sentiments echoed by our own finance minister who is well acclaimed for pro growth polices, making attempts to control the prices
For a moment let’s overlook the retrograde statements and look at the broader picture. The question is, how critical the inflation is or whether its the real culprit?
Look at the inflation picture in India, the data is as presented on a year on year basis. It’s a common understanding that commodity prices are subject to seasonal vagaries. This suggests that the YOY inflation published would be seasonally adjusted to throw a right picture. However the same is not taken cognizance of & the high inflation rate that we see now is actually a past
During April’06- Aug’06, crude prices mostly remained above $70 and globally wheat prices surged by more than 26% around Oct’2006. The impact of these supply shocks can be seen in week on week inflation however that is not what is shown. The low base of 52 weeks back index has resulted in higher yoy inflation number in recent months. The problem that appears now is actually got over few months back
Given the benign crude prices & already factored in grain prices, inflation would adjust automatically by May onwards & this all would happen without government taking any measures on price control. So all measures announced by government are keeping an eye over elections and later pat its back & get the credit
Given the government besotted with the inflation number, crazy actions may create more trouble. Wrong messages go to the industry and confidence gets shaken. Lot would depend on the expected supply of grains in coming months and monsoon picture. Moreover, any trouble in Gulf can also shake the oil supplies
The time is for monetary measures & RBI needs to take appropriate measure to balance the growth and stability of prices. However, the same seems to be missing from the scene. Continuous monetary measures taken in recent past were inadequate to control the rapid growth that might not be sustainable. It would be appropriate for RBI to take right measure and give clear path to the economy. The need is of a long term policy direction and sense of urgency, before the delayed action kills the growth
For a moment let’s overlook the retrograde statements and look at the broader picture. The question is, how critical the inflation is or whether its the real culprit?
Look at the inflation picture in India, the data is as presented on a year on year basis. It’s a common understanding that commodity prices are subject to seasonal vagaries. This suggests that the YOY inflation published would be seasonally adjusted to throw a right picture. However the same is not taken cognizance of & the high inflation rate that we see now is actually a past
During April’06- Aug’06, crude prices mostly remained above $70 and globally wheat prices surged by more than 26% around Oct’2006. The impact of these supply shocks can be seen in week on week inflation however that is not what is shown. The low base of 52 weeks back index has resulted in higher yoy inflation number in recent months. The problem that appears now is actually got over few months back
Given the benign crude prices & already factored in grain prices, inflation would adjust automatically by May onwards & this all would happen without government taking any measures on price control. So all measures announced by government are keeping an eye over elections and later pat its back & get the credit
Given the government besotted with the inflation number, crazy actions may create more trouble. Wrong messages go to the industry and confidence gets shaken. Lot would depend on the expected supply of grains in coming months and monsoon picture. Moreover, any trouble in Gulf can also shake the oil supplies
The time is for monetary measures & RBI needs to take appropriate measure to balance the growth and stability of prices. However, the same seems to be missing from the scene. Continuous monetary measures taken in recent past were inadequate to control the rapid growth that might not be sustainable. It would be appropriate for RBI to take right measure and give clear path to the economy. The need is of a long term policy direction and sense of urgency, before the delayed action kills the growth
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