Consumer Price Inflation For Month Of February Climbs To 9.47 Per Cent

The government yesterday announced the Consumer Price Index (CPI) inflation numbers for the month of March 2012. As expected by us, the numbers came in far too high at 9.47 per cent as against the previous month’s 8.83 per cent. Portraying the consumer level (ground reality) scenario, the inflation has been increasing steadily since it was first announced in the month of January 2012.

When compared to the WPI inflation data which stood at 6.89 per cent in the month of March, the CPI numbers are alarmingly shocking. This clearly indicates that while prices at the wholesaler’s level have declined within the Reserve Bank of India’s (RBI) comfort zone, the consumer level prices continue to pose a severe threat to our country’s macro-economic sanctity. Now, as mentioned in some of our earlier updates, the CPI inflation data released by the Ministry of Statistics & Program Implementation (MOSPI) is majorly divided into three parts viz. urban, rural and combined.

On a month-on-month basis both urban and rural articles have increased over its previous month levels with urban CPI inflation reaching into the double digits at 10.3 per cent. The prices of vegetables, fruits and protein-based items at the consumer level have increased sharply in recent times. Going forward, this is expected to remain sticky as the prices of fruits and vegetables increase further during the summer.

With hikes in the retail prices of petrol and diesel yet to take effect and expectations of some bad news on this front, any such hike would prove further fuel inflation upwards. This would not only be felt in inflation for fuel articles, but also in primary and manufactured articles as transportation costs spiral upwards.

In conclusion, with inflation at the consumer level showing no signs of abating, the RBI’s surprising move on April 17, 2012 to slash key interest rates by 50 bps in a bid to boost economic growth would come under serious pressure. A key thing that readers must note is that investors in fixed deposits offered by the banks in the current scenario would stand to lose. The reason is that following the RBI’s interest rate reversal stance, the banks might drop their FD rates in the times ahead. However, if the inflation continues to remain high, this will lead to wealth erosion.

We at DSIJ believe that the governor may be forced to re-think over his rather premature decision and may push the hike button in the coming months. For the betterment of our economy we hope that things will work out as per the RBI projections and inflation continues to moderate going ahead while growth stands to gradually pick up.