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The all important inflation…

Jun 27, 2008

...seemed to have rendered stocks on the benchmark Indian indices almost 'untouchable' since the start of the session today. This was in anticipation of the weekly inflation (as measured by the Wholesale Price Index - WPI) numbers. The BSE-Sensex reluctantly opened the session nearly 500 points lower than yesterday's close and barely recovered there from. Even once the inflation numbers were released, and were well within expectations, participants chose to stay on the sidelines. News relating to further hardening of crude oil prices has spooked markets globally over the past few days. In India, the fuel prices were hiked by about 10% on June 4 2008 and inflation dutifully galloped to a 13-year record of 11% for the week ended June 7, 2008 (up from 8.75% for the week ended May 31). This week it has marched further to 11.42%.

Trouble with the inflation numbers for Indian stock market around the world just doesn't seem to go away. Even Japan, which has been struggling with deflation for many years, finds itself staring at consumer inflation and declining household spending. With oil prices hitting the US$ 140 per barrel mark and Goldman Sachs forecasting more credit related write-downs at Citigroup and Merrill Lynch, the US markets also crashed yesterday. Further, geopolitical issues continue to play a dominant role and the latest such instance causing the oil prices to escalate has been Libya's comments that it is studying the possibility of reducing output following potential US actions against the OPEC countries. The largest oil exploration company in India, ONGC, sees prices remaining firm in the near to medium term, as it sees a demand inelasticity to prices.

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