So when someone talks about "Inflation at 13 year highs" - here's what they really mean. This graph (click for larger view) is from data collected all the way back to 1994, when the index was at 100. (Obviously inflation data is from 1995, to compare year-on-year)
Inflation is now the highest it has ever been since the WPI data was notified on the site. At 12.01% it is way above the peaks in 2000-01 and 2004-05 (both around 8.5%).
Anyone have quality data on interest rates? I would like to plot the chart alongside.
Inflation should reduce, one thinks, with reducing crude prices and a falling dollar (which went to 41.8, closed at 42.05). But crude doesn't impact us much unless our fuel prices fall - and given the PSU losses out there that is unlikely to happen soon. The falling dollar - that should work, if the RBI continues to let it slide to levels below 40.
Note: To be "reasonable" inflation, we need to at least get below 8.5%. How long will that take? I'm a curious observer.
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>deepak
1995-1997 was a period of very high interest rates. AAA bonds and FD were available at 15% p.a . The RBI hiked rates to bring down inflation – equivalent of using a bomb to kill some rodents – because of our poorly developed financial systems.
the risk is that if inflation does not moderate in some time, history may be repeated ..and that will not be good for equity and the economy.
lets pray for our sakes that inflation comes down, otherwise investors are in for a major shock
regards
rohit
08.07.08 at 9:44 PM
>I agree with Rohit’s analogy of killing rodents with bombs.
Policymakers the world over have focused so heavily on inflation in recent years that they seem to have lost sight of the real goal of economic policy; real growth.
Now inflation obviously factors into real growth and the danger of inflation becoming a self-perpetuating force is something which must be considered. However it would be foolish to repeat the errors of previous years and to obliterate growth altogether in a desire to tackle inflation, which may well moderate itself anyway as demand pressures in commodity markets ease.
alex@moneyvidya
08.13.08 at 6:54 PM