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Charts & Analysis

CPI for May 2012 at 10.4%, Highest Since Sep-2011

Inflation based on the Consumer Price Index was a whopping 10.36%, announced yesterday, for May 2012. This is way higher than the Wholesale Price Inflation of 7.55%.

CPI May 2012

What has risen like crazy? Looking at the broad components:

CPI Components

Housing remains at the top of the list with a near 16% rise, and this remains a key area of concern. Food and Fuel are quite strong at 10%+, and a substantial portion of expenditure has risen above 10%.

Rural does marginally better as prices in cities are moving much faster:

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Much of rural inflation will come after the harvest, when farm yields will determine how prices move. Still, there is no "housing" index for rural CPI, so that 16% rise in a city is likely to keep urban inflation higher.

Finally, the month-on-month.

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Takeaways:

  • Housing prices (the above are rents) remain high. The real estate market is slowing but prices aren’t coming down. The eventual bust can have an impact, but not quite that much on the banking system (bank loans are just 10% of the overall credit) as in the west.
  • CPI is a better indicator of inflation as it includes the services pieces which are a huge chunk of anyone’s expenditure. And it’s going up at 10.36%, a very high number.
  • As long as CPI remains high with an upward trend, it’s unlikely we see better growth going forward.