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Charts & Analysis

Consumer Prices Go Up at a Scary 9.84% in Sep 2013

Consumer Price Inflation for September was a huge 9.84% as policymakers struggle to find out what makes prices keep going up and up. The answer, in my opinion, is to raise interest rates to 12%, 15% or whatever it takes to break the back of inflation. That is unacceptable, because it will hurt growth, they tell us. But growth of this sort is just a waste of time – 9% GDP growth with 9% inflation is just stupid.

The drift between the CPI and WPI continues to be wide but has narrowed just a little bit, after today morning’s print of 6.6%.

WPI and CPI

Rural Inflation has now started to catch up to the double digits that CPI is at in the cities:

CPI urban and rural

And finally, a look at the components:

CPI Components

What this tells us is that the critical components of our lives – food, transport and housing – are in spiralling out of control, and while the numbers are marginally lower than earlier in the case of food, the 11% number is simply too much.

What we need is the will to control this inflation. You could argue that interest rates don’t impact inflation because it’s supply side, or driven by NREGA or something like that. I think that is bullshit.

There is no shortage of supply of food, in any real sense. Fuel prices are actually lower than what it should cost us because of subsidies. Interest rates do impact food hoarders and governments (who is the biggest food hoarder) and unless we make it really difficult for them, inflation will not ease. In the process, the collateral damage has to be the economy temporarily.

If we bite the bullet today, we’ll have a better tomorrow. Rajan at the RBI is young enough to be able to see the fruits of inflation control, though almost none of our politicians are. It’s not clear if his stance will be to hike rates, but I believe he should, and strongly so. And, he needs to contract the RBI balance sheet and cut liquidity – something he’s simply not doing.

This is just another piece of news that doesn’t change anything – and markets will continue to go up because no one cares. Until everyone has to.

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