The WPI inflation is now at 7% and climbing, putting the Govt the fm and the RBI in a tight spot. I had expected this to happen as i wasn’t quite sure of the FMs management skills and mentioned it in my budget post – Budget what matters most.
It is hurting the middle classes as everything is getting expensive, be it vegi oil or rice wheat, pulses, milk or other essentials. Summers mean more Electricity bills in a power deficit nation of ours. I worry about the millions that have 3/4 children to feed living on 2$ a day not getting what they were promised by the UPA during the last general elections, in terms of subsidised food promised in BPL cards on account of shortages due to mismanagement and huge divergence from open market prices leading to black marketing.
And it shows, cause it is now affecting budgets of the upper middle class too, many of who have also been burned by the market fall, and purchased their second house at atrocious prices on floating rate loans. The press has woken up quite late as normal and is doing the round of shopping malls and markets, counting each rupee spent in a days shopping, instead of the regular cricket updates, Bacchan updates, scandals gossip and interviews with successful entrepreneurs in 5 star hotels… rediff has a wierd articles like this one.
Looks like real returns on deposits after effects of inflation based on real prices or CPI , compliance costs and taxes should now be negative, for the aam admi.
Pushing Subsidy burden on PSU Oil cos and Banks in terms of expecting them to cushion the Governments populous decisions is old news.
Looks like we are knocking on the Diktat / Control raj doors, as the Govt is in a hurry to cut inflation by attacking the prices of the WPI basket constituents like steel , cement etc by some closed door coercion to Pvt Companies, and some threat of stern action and invoking provisions of draconian price fixing laws of the prohibition era, while the rail ministry on the other end increases freight rate, increasing their costs.
The RBI is attempting to suck out liquidity through mkt operations and an expected CRR hike, but will it be enough? Worse we are importing US inflation by holding the Rupee to the dollar at close to Rs40. Read Ilas post on dollar purchase by RBI and watch Ajay Shah for his excellent analysis on Worldwide Inflation of commodities.
Things are going to be interesting, and markets fragile. I think sooner than later the Property markets will also start to correct by a fair bit.