MoM Inflation

Guys I am posting about inflation again, please bear with me. While discussing in one of our class I told my friends that India is facing the imported inflation. That means majority of our inflation is imported in the form of oil as we import almost 70% of our oil requirements.

The best proof for that argument is this week’s inflation numbers, which reduced to 8.98% from 10.72%. Steepest fall of 1.72%, which is because of Naphtha (33% down) & Jet aviation fuel (18% down). And still petrol, diesel and gas rates are not reduced by the central governments. Center wants the state owned oil companies to recover the losses which amounts to almost Rs. 140000 crore. If those prices are reduced then again inflation will come down & may be within the RBI’s standard before its expectation. And looking at political angle, central government may want to cash in the cut in the prices just before the elections say in February or March. Till that time both the purpose will be solved like recover of loss & political gain. One more problem they are facing is great extent of rupee depreciation from its peak levels 38-39 to above 50 levels so for same amount of crude, India needs to pay nearly 10-12 $ more.

Now coming to today’s topic, I want to congratulate the central government for deciding to come up with month on month inflation numbers rather than existing year on year!

In this existing condition, actual price variation in the market may not be clearly visible as it is always compared with the base week of the previous year. Means even if in the market prices may be decreasing but if in previous year’s inflation increased from its last week then inflation numbers what we get now may not be decreasing in real term and vice versa. This is what I discussed with many of my friend’s earlier and I think once I posted also.

But now government is thinking about month on month inflation numbers. Here we will get almost accurate numbers in accord with the market price movements. Here inflation numbers which will be released will be compared with last month’s inflation numbers which will indicate the most recent trend in the inflation numbers. Of course in the process of changing from YoY to MoM they may face some problems like whether to take average of the whole month or that particular week in the previous month!!!

Now looking at the world economic condition, RBI needs to think one more round of interest rate cut in near future if not immediately. Since there is fear of DEFLATION and it will be there in all recession/depression times. Since almost all major economies like EUROJONE (first time since its formation), UK (Its interest is lower than the Euro first time since Euro formation), US (FED rate is 1%), GERMANY (Interest rate 3.19%) & ITALY (3.75% interest rate) are about to enter or already in recession. So to boost the domestic sentiments RBI needs to think of REPO RATE & CRR.