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Charts & Analysis

CPI Inflation for Oct 2012 at 9.75%

Consumer Price Index based Inflation (YoY change) is now 9.75% for October, a marginal increase over inflation in September (9.64%). Inflation remains sticky at the consumer level way beyond the comfort zone (which, after all these years of high inflation, should be -5%)

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(WPI for October is coming in on Thursday)

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I’m not sure I agree with this since Fuel has supposedly only gone up by 7.6%. (Diesel is up about 10% and it is used by a significant population – from cars, to tractors to diesel generators) MOSPI doesn’t release the exact underlying components under each head, so I don’t know what "fuel" consists of – the only item mentioned in their press release is "PDS Kerosene". This is not adequately reflective of either urban or rural households, in my opinion.

(If you know about the exact underlying split – that is weights of components that make up "Fuel" etc. in the CPI – please let me know?)

The Rural versus Urban landscape shows some kind of consolidation at a very high level:

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Whatever the case, the numbers are way too high. With this kind of inflation, we should be having interest rates at 10% plus (at the retail level). Your money is getting debased at this level. In other words, you need to earn 10% on your money just for it to be able to buy the same things next year.

Growth is suffering and should suffer, because inflation is a greater beast. If you break the back of inflation, you will get a long term sustained upmove in the economy. Volcker did that in the early 80s in the US, and they got nearly 20 years of phenomenal growth. Nearly every country that didn’t – from Argentina to Germany (20s) to France (1800s) faced hyperinflation or political upheaval or a revolution, sometimes all. The consequences of high inflation are not good, and 10% over a sustained period is simply too high.