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Charts & Analysis

CPI Inflation for Oct 13 At 10.1%; Interest Rate Hike Likely?

Okay, we’re now getting into ludicrous territory. Consumer Price Inflation has just crossed into double digits, moving to 10.1% in October 2013. Wholesale price data will only come on Friday.

India CPI Inflation

And here’s where it gets worse. Inflation which seemed to have mellowed in Rural areas a few months back, is now back to double digits.

Rural and Urban CPI Inflation

And it’s not just food, like they’ve been telling us all this time. Food inflation is high – at 12%. But Housing at 10% isn’t much behind, and costs of transport, Education etc. have gone up. Fuel costs have remained only at 7% which is artificially down (as retail prices must be increased, we are currently subsidising fuel).

CPI Components

Impact: A Interest rate hike is possible.

While this is the call of the hour, it is unlikely they jump the gun until WPI data comes along. They’ll first give us the runaround about how “core” inflation is still under control if you ignore food, but you can’t ignore food. Food prices CAN be brought down by higher rates, because the problem in food is not supply (ample rainfall has ensured there shouldn’t be a drop). Plus, a hike in rates can easily bring down “Others” and “Housing” inflation.

We need to tighten liquidity and tighten rates, very fast. I believe 10% deposit rates should be expected and if this number is any indicator, consumer price inflation is moving up at a rapid pace.

  • DJ says:

    Wow, I’d thought that inflation would start to decline with good monsoon, higher import prices, etc, but its not the case. Looks like there needs to be a longer, more serious fight from the RBI, and it looks like we will have to have a recession too. Uh oh….

  • mangoman says:

    I have been maintaining since long that inflation in India has nothing to do with supply side problems. Supply side issues were always there. But raising that now is idiotic.
    The ruling class including Chidambaram, Montek, Rangarajan all have been cheating us and I dont know what is the IPC section for this…this is blantant cheating of common people
    Whowever says inflation is due to supply side either must be a outright idiot or a cheat…

  • Ravi says:

    Looks like you had a busy day Deepak… Four postings today!! Look forward for your premium posts as well.
    Thanks

  • Ajay says:

    Hi,
    Where do you see the Long Term (10Year) Interest Rate (Fixed Deposit) in next 3 to 6 Months. It is almost 9 to 9.5 currently. Do you see it still moving up 2 double digit in short time?

  • Leo says:

    Well i see rates DOUBLING FROM HERE …LUNGY and moron gang had they raised rates before things would have been better, BUT NOW india is in hyperinflation mode at that moment rates on GSEC will rise dramatically .
    CHECK THE CPI chart from 1960 it is a 45% triangle. breakout around 10 %
    so it will reflect in currencyfirst