Just where is inflation headed?

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The correct answer is North! Just kidding. You don't want that to happen, do you? Rising food prices means millions of people earning less than $2 a day are giving up health care and education. Those living on less than $1 a day are giving up meat and vegetables, and those living on less than 50 cents are facing increasingly desperate hunger. How many such people might be there in India? Ask your socialist friends.

The chart above can be used to see the current trend. The last column is the familiar WPI growth figure. The weekly annualized columns for 2007 and 2008 show the growth of the WPI index week over week, annualized. If you see the averages for the weekly annualized growth in the last row, it clearly shows this year the WPI number is growing much faster than last year. In other words, even if prices suddenly become flat, inflation as reported will not come down by much. For instance, consider the row highlighted in green. This is what the Minister of State for Industry believes will be the inflation figures in a few weeks from now. As you can see, it is going to be pretty tough to get down to that number.

Also see the random jumps in the weekly annualized numbers - this shows a Government intervention. For instance, right now the FM is browbeating the steel and cement companies into reducing prices. Together, these two sectors contribute about 12% to the inflation index. A good time to build that home? Maybe.


A significant portion of the price rise must be due to increases in oil prices, although that does not fully explain the massive increase in food prices. The socialists can thank their Saudi friends and Venezuelan ally for this. The Saudis have refused to increase production. The 21st Century socialist Hugo Chavez can be counted on to create chaos later this year. Both these parties want to influence the US elections, towards the end of this year.


If the price levels seem bad today, wait till all the election promises kick in. The Government has found a nice way to bypass the FRBM act. The official deficit runs at around 3%, but many items such as fuel and electricity subsidies are kept off budget. The farmer loan waiver and NREG also belong to this category. Then you read items such as this almost every other day. It is the same old story, they give Rs. 2 a kg rice to a set of people, the other set starves. Who decides which set of people get to starve?

Pretty soon the Rs. 2 a kg rice and free color TV options will hit their limiting factors. The only thing left is distributing bags full of money. So far this has not been done since direct cash bribing may be marginally illegal. But given the recent supreme court verdicts and their underlying implications, it will just take a daring politician and a creative twist.