Economy

Image via Wikipedia

Inflation is back with a bang

The data released this week show a negative inflation. This is first negative data in 3 decades, since the index started. But if you study the number closely you will realise that its only WPI which has corrected, whereas CPI has moved up to double digits.

This is in complete contrast to what RBI's expectation was of CPI coming back to about 5%. A high inflation and a global slowdown is a real bad news for the economy. This also put the central bank in a dilemma. It is difficult to increase interest rates as the economy is slowing and interest rates can not be reduced because inflation is already high.

the trend of a high CPI and eventually a high WPI looks imminent. in another six months or so the base effect will also come down significantly. If central bank decides to increase the interest rate, which I think they will, the industry will feel the heat.