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Inflation – Between the lines - Views on News from Equitymaster
 
 
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  • Apr 26, 2000

    Inflation – Between the lines

    Official estimates will tell you that inflation in India is at a paltry 3.7%. The economy is growing at a brisk pace. All in all the scenario looks positive…

    Look a little deeper into the numbers and things do not look all that great. Consider for example the fact that fuel prices have risen considerably over the last one-year. Prices of most commodities too have appreciated significantly. However, even though individuals are spending more on the same basket of goods, inflation numbers fail to reflect the rise in prices... at least not adequately.


    Index Numbers of Wholesale Prices (1981-82=100)

    There are two main reasons for this distortion. First, the year on year effect – the surge in food prices witnessed in late 1998 has had a moderating effect on the subsequent price increases (in percentage terms). This effect has however been sobering down. Second, and more important, is the weightages accorded to the various goods comprising the index. As a result, even though fuel prices may have jumped, they do not effect the inflation numbers significantly due to the their low weightage (as compared to say manufactured products).

    Inflation is once again raising its head, and this could be a cause for concern as it has wide ramifications for the fledgling economic recovery. Then again, the rise in prices may be much more than represented by the numbers. Whether this would prompt the Reserve Bank of India to put on the brakes is unlikely, as it would not risk nipping the recovery in the initial stages. In the meantime, the monthly expenditure bills will continue to rise. Faster than the inflation numbers would indicate.

     

     

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