Consumer Price Inflation for December 2013 came in at a lower 9.9%, which is lower only because November was a (revised) 11.16%.

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The big fall has been food, where prices have risen ONLY 12%.

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What’s interesting is that fuel prices seem to be rising only 7%, when the fuel of the masses – diesel – is up more than that. While there is some reduction in clothing prices and those of household items, many of the other items including housing remain at elevated levels.

We seem to have rural inflation above urban levels again, with rural inflation in double digits:

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Impact: While it has come down, CPI inflation is still too high. It doesn’t lend itself to getting a rate cut from the RBI just yet, even though industrial growth is weak. At 9.9% one can only get relief that it wasn’t 10%, but it’s too close to it to say that the worst is behind us.

Oh, yes: This will help CPI Linked Bonds which are on sale in most banks (it seems). The effective rate of return will be a pre-tax 9.9%, but that is still lower than what you can get with tax-free bonds elsewhere. And if inflation continues to go down – which it will because of softening food prices – the tax-free bonds are a better bet.

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