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Mr FM Pranab – How many more Monsoons do you need to Cool WPI ?

May 14, 2012

India’s headline inflation rate (Wholesale Price Index, WPI) accelerated to 7.23% YoY in April 2012, compared to 6.89% YoY in March 2012. The acceleration in headline inflation was driven by higher food inflation, which was in turn driven by higher prices of vegetables and oilseeds. The final inflation data for February 2012, was revised higher to 7.36% YoY from 6.95% YoY reported earlier.

Food articles moved substantially higher to 10.5% from 9.9% last month, due to an upturn in vegetables, pulses, and cereals. Manufactured FOOD prices edged higher to 6.5% in April from 5.9% the previous month.

Non-Food Articles were back in positive territory (+1.6%) after two months of contraction due to higher prices for oilseeds. The fuel index up 11% from 10.4% last month reflecting coal price revisions.

RBI & Inflation – What now?The surprise in this month’s inflation will mean that the monetary policy easing will be slow and limited in the current cycle. In addition, we believe that the more important question would be when the actual cost of borrowing in the banking system will come down.

The scam scarred government is under immense BOP stress which will mean currency pressures – high cost of capital – slower investment and GDP growth. In other words, unless the government cuts its spending (including subsidies) , India will remain exposed to BOP stress which is further delayed because of Policy Paralysis.

You are aware that Mr. Pranab Mukherjee, the Finance Minister has been making false promises for a year now and had bought time with silly excuses of monsoon, etc. Who are you kidding with Mr. FM ?

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