Inflation: Dont Overreact

Inflation: Dont Overreact Starting the delayed mining projects and inter-state farm trade will help more than raising interest rates Indicus Analytics Published: ET Inflation,inflation,inflation the bugbear refuses to go away.The central bank raised its estimate for the wholesale price index (WPI) to 8% for March 2011,up a percentage point since its last estimate in January.Recall the first estimate for March-end inflation given last April was actually 5.5%,so even though inflation has declined over the past year,the fall has not panned out as anticipated.This has largely been due to inflation in primary articles,first in food articles and now in non-food,and these pressures will continue. Our research shows that price increases are spreading across the economy and perhaps more in the unorganised sector than in the organisedone.Wages are rising for semi-skilled and skilled workers far above the NREGA norms,growth in eastern India has reduced availability of unskilled labour,and real estate prices are on the uptrend across rural and small-town India.Profitability will take a hit at least for the next couple of quarters.The recent uptick in inflation in manufactured products is,therefore,expected to continue in the next quarter to peak around 6-7 % by June,stabilising about a percentage point lower by the year- end.Theseestimates,ofcourse,depend critically on how fuel and commodity prices move.Looking at the crude trend,the unrest in west Asia has already pushed prices up by about $15 a barrel and,while it is acknowledged as a short-term phenomenon,it is not clear how long this will last.China and India have again been held to account for the rise in input prices with strong growth.Both countries have upbeat reports from the PMI survey,which for

Inflation: Dont Overreact

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