The obstacles to managing inflation ..and RBI policy

Fruits and Vegetables production is down this year due to a Water scarcity with All india Vege growers association claiming in ET that production of vegetables is down 25% and will continue to be lower unless Water supply improves. Key fruit markets are also similarily driving up prices with HP’s Apple production down 50%, Kashmiri apples down 25%, Nagpur Oranges losing 50% of production and Banana from Maharashtra also losing production 40% over FY2011 to end the fiscal on apoor note 

Thus Fruits and Vegetables prices will be up 20-40% for this year in each quarter as already seen in FY12 above. 

Oil prices ruled higher throughout Q1 abnd though forecasts are being lowered now, India’s oil basket price will remian at the all time high of nearly $115 thus making it unlikely that inflation will come down by too much

Even gold ETFs have picked up quite well with India Gold ETFs holding 33 tonnes of the physical metal by December 2011 and tripling the number of investors to 500,000 (AUMs of listed Gold ETFs – India – INR 92 bln or $ 1.84 bln) and a further INR 5 bln in two months of 2012 pre budget

With punitive duties on gold held back to keep Exports pliable, the inflation rate is also likely to keep a slightly higher watermark

However March 2012 inflation WPi/ and CPI will both reach a under 7% figure , 6.5% for WPI and then climb from that lower base , so even if the RBI proceeds with one ratee but immediately next week, it won’t have many more following up in 2012




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