Saturday, August 16, 2008


This year India has celebrated Independence Day with inflation rate touching new high; with same pomp and show, and the ruling government keeping the ensuing vote in mind has been generous with the largesse by hiking the pay of 5.5 millions government employees by 21% and more. Rest is left for to mend for themselves. Here is the release from Ministry of Finance
Statement released by the Department of Economic Affairs, Ministry of Finance:

"The rate of inflation for all commodities for the week ending August 2, 2008 stands at 12.44%, higher than the rate of 12.01% reported last week. After being nearly stable for four weeks, this rise has come as a major disappointment.

The Wholesale Price Index (WPI) moved up from 239.6 in the week ending July 26, 2008 to 240.4 in the week ending August 2, 2008.

The silver lining is that the inflation rate for the group of 30 essential commodities at 6.54 per cent was lower than the inflation rate of 6.66 per cent recorded in the previous week. Annual inflation of the 30 essential commodities has continued to be range bound between 5.7 to 6.7 per cent in 18 weeks of the current fiscal year. Prices of essential commodities, which include food grains, pulses, edible oils, vegetables, dairy products and some other commodities including kerosene, soap and safety matches have more or less stabilized.

In the 'primary articles' group, the annual point-to-point inflation increased to 11.43%, as compared to 10.32% reported last week. However, out of a total of 98 articles, 13 articles have shown a decline in prices as compared to July 26, 2008. These included among others, wheat, groundnut, castor and gingelly seed, raw wool, brinjal, cabbage, okara, sapota, fresh coconut and copra. Another 57 articles have shown no increase in prices.

In the commodity group 'fuel and power', the rate of inflation has risen to 17.99 from 17.12. Prices of 14 articles (out of a total of 19) have not shown any increase. Prices of naphtha declined. However, there has been a rise in prices of furnace oil, bitumen and light diesel oil.

In the case of 'manufactured products', rate of inflation in the current week remained unchanged at 10.75%. Out of 318 commodities, a large number, 293 in all, have shown no increase in prices over the last week. In the case of 13 commodities, there is a decline in prices. These commodities include most of the edible oils (mustard, cottonseed, groundnut, rice bran, vanaspati and imported edible oils), oil cake, foundry and basic pig iron, MS bars and rods and zinc. Only 12 products, particularly viscose filament yarn, sugar and gur, hessian cloth and bags, decorative laminates, BOPP film and lead ingots witnessed an increase in prices.

Inflation, on a week-on-week basis, was reported at 0.33%."
With the sure sign to industrial growth having been slowed down to the level of more or less half of what has been in the last year during this quarter, we need to see how long it lasts. The further expectation of tightening the monitory policy by central bank, raising interest rate and CRR is running high. Stock market appears to be taking note of the situation apparently but the current fall in crude and gold index, indicates that the FII s are likely to be back soon and jack up the stock prices belying the usual trend. The small investors are vulnerable in such situation; they may be wooed by rising index. But it may fall anytime as and when the FIIs find better place to shift their funds.

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