Inflation in India touches 11.63 : Whats ahead in store for us?
Posted by: Chirag Jain on: July 4, 2008
News has just ‘flown in’ that Inflation is up to 11.63 % !! With the world heading towards recession, and oil prices booming, inflation is bound to come. RBI responded last week by raising repo rate from 8% to 8.50%. The Reserve Bank also hiked the CRR (percent of deposits of banks kept with RBI) to 8.75% from 8.25%.
The G8 countries are to meet soon and obviously, this growing inflation will be on everyone’s mind. Moreover, World Bank president Robert Zoellick has urged the G8 nations to work in tandem with OPEC countries to reach some decision/action to curb rising oil and commodity prices. ECB has already taken the bold step of raising interest rates from 4% to 4.25% to curb inflation(which has touched 4% in Europe - a high value, keeping in mind, their target of 2% inflation).
But are these measures enough?? Inflation has more factors than just a single-dimensional reason of interest rates. Take for instance, oil prices. Supply Demand are not the only essentials to it…even increased output did not push down prices, as I had written 2 weeks back.
Food crisis is also fueling rapid inflation. Prices of rice and wheat globally have gone up atleast by 2 times. Most developing countries were hit, with the African nations being the worst-hit victims. Food crisis was also not only triggered by increase in consumer demand in India and China, but by global practices of food use. Per capita food consumption have actually decreased in India and China.
Read more on the food crisis and also effects of truck strike on Indian economy and increasing inflation >>
This natural balance between demand and supply was hit primarily by using cereals like corn/maize and sugarcane for making bio-fuels like ethanol for use in petrol/diesel. USA use nearly a third of their maize production only for making bio-fuels. Adding bio-fuels enhances petrol/diesel in cars and vehicles and helps bringing down actual rates. Rising oil prices only mean that this figure[of usage of bio-fuels] is going to spiral up, as it already has since 2005-06 when it was just 6%.
I suggest that if countries are to protect themselves from food crisis, they are to isolate themselves from global markets in food and be self-sufficient in domestic production. Managing security of surplus of food-grains is really, really difficult for our Indian govt. since food grain production is increasing at a minuscule rate of 1 percent yearly.
I guess i’m ending on an abrupt note here. Please post your comments here or cast your vote!!
10 Responses to "Inflation in India touches 11.63 : Whats ahead in store for us?"
1 | Priya
Inflation is the most killing thing, it can bring down governments, it leads to interest rates hike, poor people are worst hit. Even the finance minister is saying that it might touch 13%, god save us all. I even think that a lot of petrol diesel price hike has still to take place which will increase inflation further.
2 | Ravi KK
The renewed demand for bio-fuels and ethanol for petrol additives will now create more demand for food in developing countries like Asia and Africa, further worsening this mess.
correctly stated that it is linked somehow to oil prices b’coz ethanol is a petrol additive and will be used now that petrol becomes even more expensive.
3 | Sukhraj Nanda
Yesterday a news article in the Hindustan Times says that India lost more than 10 lakh metric tonnes of foodgrain stored in FCI godowns in the last decade,enough food to feed 6-7 lakh poor people for 10 years.
To add insult to injury the article also states that over Rs.243 crore is spent on ‘preservation’ of foodgrains.
I need not say that the situation is pathetic/disgusting and sorry.
4 | Chehak
U.S.A. is using bio fuels at an alarming rate. The maize required to produce 1 litre of biofuel is equivalent to the maize consumed by an average African for an entire year!!
5 | mayank
“whats ahead in store for us?”
- i guess its touching the 15% mark, this thing has also affected the prices of gaming consoles….i planned of buying a ps3, shattered now
6 | Inflation Inflation - its become 11.63% « Bizonomics’s Weblog
[...] Read more on the effects it’ll have here. [...]
7 | Prasanna
A very interesting and informative post indeed. The points that you raised throw up a lot of questions about inflation. But i belive it is not one solitary factor that is leading to inflation. Hence blaming just rising oil prices and food prices isn’t sufficient.
In an interesting discussion on UTVi, Commodity Guru Jim Rogers explained the oil economics rather well and also provided a very belieavable reason for the rise in prices. I think controlling inflation is not just a task india is facing, rather the entire world is suffering from it. This calls for global efforts and not individual controls.
8 | Inflation in India touches 11.63 : Whats ahead in store??? « My Finance Times
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9 | parag shah
True I agree and as common man we really cant help much but to cut on spends and wants.
but more than that this also calls for smart investment no no not the stock market but MF or gold. I want searcing thru some stories and came across this one - http://mutual-fund-investor.blogspot.com/2008/07/reliance-sip-insure-reliance-mutual.html
looks interesting option with Reliance SIP Insure and a nice review. need more such options. money invested is money earned 
10 | Manoj
hi viewers the given paragraphs is about inflation of stoke market. in these days the Indians are going very poor stage because the effect bcecome on the market of indian . so the all products prices are going heigh and the middle stage people are helpless to do that. so i agree with all statement that wrotten on the upper side
Chirag Jain
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