Close to the end of QE2 here is an interesting interview with Faber the famous publisher of the Gloom, Boom & Doom report.
Watch Faber on Inflation and China Bloomberg
The message here is a complete lack of trust on inflation data both in US and in China …
In the Indian context the Issues are the same.
RBI is not serious about inflation control so long as Interest rates in the western world and EU are negative or close to zero.
It has purchased $ 31 billion in the last yr, that’s about 1.3 lakh crores, which accounts for most of the increase in currency from 8.25 lakh cr. to 9.61 lakh crore in the last one year. Since April 1, 2011, bought over $4.5 billion. Thats Rs 35 billion. (figures from capitalmind.in)
This is the other method of printing money and increasing money supply, mainly to support governments decision to protect exports and dissuade imports by keeping the unofficial Rupee peg at 44/45.
Thus as the debt manager of govt it wants real interest rates below real inflation rates thus punishing savers and creating asset price bubbles
The yield curve has inverted … It is a sign of impending recession.
We are in the midst of a serious asset price bubble where real estate prices have more than doubled.
The prices of vadapao and milk have tripled.
We are also in a classic wage price spiral as wages are chasing prices and vice versa.
MG NREGA is inflation adjusted and will add to increase in inflation
There is a 9 to 14% increase in minimum support prices will add to inflation.
My conclusion … expect more inflation as govt attempts to keep its vote banks happy , and these attempts will be more desperate as time passes and govts laissez faire inactive policy making will alienate more Indians in future.
Markets are expected to be choppy and probably correct as more negative news comes out.