Khao Aur Khilao budget by Arindam Chaudhuri
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0।44% Inflation
A quick reality check reveals that the consumer prices are consistently moving northwards while the headline inflation moves southwards. Picture this – inflation rate (as on March 7, 2009) for sugar, salt, pulses, cereals, milk and spices are respectively pegged at 22.37 per cent, 11.07 per cent, 10.97 per cent, 10.16 per cent, 7.1 per cent and 6.23 per cent – now that’s the bitter reality. The miniscule weightage attached to this key category and the high price that these food items command is subtly dwarfed by the inclusion of numerous other commodities, which, strictly speaking, do not qualify within the ambit of essential goods.
The current basket of WPI does not include power bills, medicines, education, transport et al (which, in the real sense, involve a heavy outgo), but is tilted more towards manufacturers, so that the behaviour of the index for this group largely determines the movement of the overall index. Now that’s the manipulation that the government has been resorting to; had it not been so, the headline inflationary picture could well have been altogether different. As a matter of fact, the retail-based inflation continues to be in double digits; consumer price indices for agricultural labourers (CPI- AL) and for rural labourers (CPI- RL) are both pegged at 10.79 per cent.
Actually, the real difference is in the constituents of the index, for the government plays around with WPI data, while what really matters to the aam aadmi is CPI. Consider this: food prices have about 60 per cent weightage in CPI (AL and RL), while its weightage in WPI is around 15 per cent, thereby overshadowing the importance of consumption basket of the masses.
Though deflation fears exist, at the retail level it is a distant dream. Nevertheless, the government has been quick to rule out any such possibility. Says KM Chandrasekhar, Cabinet Secretary: “I do not see any signs of deflation, as demand for certain sectors like steel, cement and automobiles is picking as also is rural demand. The inflation trend clearly shows that the stimulus packages rolled out by the government are starting to show results.”
According to Tushar Poddar, economist with Goldman Sachs Inc, (remember the BRIC report!) inflation will turn negative in April and will remain so until the end of 2009. What does the declining streak of inflation have in store for banks? Singhania expresses his fears as he says, “Alarmingly, given the present inflation rate and the interest rates being charged by banks, the real rate of interest in the economy is at double digit levels. Banks must lower lending rates to single digit levels if economic activity is to be stimulated.” More than that, consumers should in fact be now demanding for a real basket of WPI, which reflects the price volatility in actual terms and not in tandem with the manipulations of the government.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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0।44% InflationA quick reality check reveals that the consumer prices are consistently moving northwards while the headline inflation moves southwards. Picture this – inflation rate (as on March 7, 2009) for sugar, salt, pulses, cereals, milk and spices are respectively pegged at 22.37 per cent, 11.07 per cent, 10.97 per cent, 10.16 per cent, 7.1 per cent and 6.23 per cent – now that’s the bitter reality. The miniscule weightage attached to this key category and the high price that these food items command is subtly dwarfed by the inclusion of numerous other commodities, which, strictly speaking, do not qualify within the ambit of essential goods.
The current basket of WPI does not include power bills, medicines, education, transport et al (which, in the real sense, involve a heavy outgo), but is tilted more towards manufacturers, so that the behaviour of the index for this group largely determines the movement of the overall index. Now that’s the manipulation that the government has been resorting to; had it not been so, the headline inflationary picture could well have been altogether different. As a matter of fact, the retail-based inflation continues to be in double digits; consumer price indices for agricultural labourers (CPI- AL) and for rural labourers (CPI- RL) are both pegged at 10.79 per cent.
Actually, the real difference is in the constituents of the index, for the government plays around with WPI data, while what really matters to the aam aadmi is CPI. Consider this: food prices have about 60 per cent weightage in CPI (AL and RL), while its weightage in WPI is around 15 per cent, thereby overshadowing the importance of consumption basket of the masses.
Though deflation fears exist, at the retail level it is a distant dream. Nevertheless, the government has been quick to rule out any such possibility. Says KM Chandrasekhar, Cabinet Secretary: “I do not see any signs of deflation, as demand for certain sectors like steel, cement and automobiles is picking as also is rural demand. The inflation trend clearly shows that the stimulus packages rolled out by the government are starting to show results.”
According to Tushar Poddar, economist with Goldman Sachs Inc, (remember the BRIC report!) inflation will turn negative in April and will remain so until the end of 2009. What does the declining streak of inflation have in store for banks? Singhania expresses his fears as he says, “Alarmingly, given the present inflation rate and the interest rates being charged by banks, the real rate of interest in the economy is at double digit levels. Banks must lower lending rates to single digit levels if economic activity is to be stimulated.” More than that, consumers should in fact be now demanding for a real basket of WPI, which reflects the price volatility in actual terms and not in tandem with the manipulations of the government.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM 4Ps Quiz- Shahrukh Khan Video
IIPM - Most Innovative B-School
IIPM Best B-school
IIPM
IIPM Global B-School
IIPM Alumni Officially on Facebook
IIPM 4ps Quiz
IIPM: History, and Founder Director Dr. M.K. Chaudhuri
IIPM New Delhi, The Indian Institute of Planning and Management, India
IIPM Placements New Delhi, India
IIPM New Delhi India
IIPM MBA Institute India
IIPM - International
Business and Economy - India's Most Influential Business and ...
Rankings IIPM, The Indian Institute of Planning and Management India
Management Certification, IIPM India
(IIPM) Management Education Institute India
Moneycontrol >> News >> Press- News >> IIPM ranked No1 B-School in ...
» IIPM ranked No1 B-School in India :: Education, Careers ...
The Hindu Business Line : IIPM placements hit a high of over 2000 jobs
Deccan Herald - IIPM ranked as top B-School in India
India eNews - IIPM Ranked No1 B-School in India
IIPM Delhi - Indian Institute of Planning and Management New Delhi ...
domain-b.com : IIPM ranked ahead of IIMs
IIPM makes business education truly global-Education-The Times of ...
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