Indian Inflation Is Nasty, Nasty, Nasty

We hear a lot about inflation in China, but not so much in fellow BRIC India.

So just as a heads up, the scene is ugly.

Here’s the latest from Waverly Advisors:

February Wholesale Prices in India registered at an annualized 9.89% versus 8.56% in January according to a Ministry of Commerce release this morning, with the critical food component  of the basket climbing by 17.79% over last February.  Although February’s Y/Y food price inflation has declined sequentially from December’s high of nearly 20%, the pressure on the government to act will be tremendous.

 Factory gate prices are not a true reflection of cost-to-consumer, but these WPI figures, as the best available data, seem to indicate that the Singh Administration grossly underestimated the potential for inflation as the desired stimulus led output and investment gains have exacerbated  the agricultural complex after last year’s disastrously dry monsoon season.   The public assurances of Singh’s administration and Central bank Governor Subbarao that food prices will moderate in the new year (March to March) is meaningless if this year’s monsoon rainfall disappoints. Note that ,with agriculture accounting for nearly 20% of GDP but employing over half the population, water is the most volatile commodity in the Indian economy.

indian inflation

Photo: Waverly Advisors

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