CPI Inflation in Charts: Jan 2014 at 8.79%, Lowest in 25 months

2 comments Written on February 13th, 2014 by
Categories: Inflation

CPI Inflation has eased to the lowest rate since Jan 2012, at 8.79%. The trend is definitely down and nearly all of it is due to the huge drop in food prices.

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Data on wholesale price inflation (WPI) will come on Friday but nowadays it is the CPI that is more important.

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Let’s look at components: the big down-mover has been food which is at 9.9%. You’re probably thinking I’m crazy - how is food inflation at 10% a good thing? The answer: I don’t really know, but I suppose it’s the difference between falling from a 15th storey balcony and from the 2nd floor - in one case it’s surely death and in the other, there’s a chance, but in both there’s too much pain.

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Housing remains at 10%, and Education and Medical costs have gone up more. Strangely, Transport costs are at 7.4% which sounds less because we’ve had all these diesel price increases since last Jan.

Food components still show signs of embedded inflation:
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The aim is to get the CPI Inflation rate to 8%, according to the Urijit Patel Committee Report. This was to have been done within 12 months, but it looks like we’re getting close already!

But bringing it to 6% and sustaining (which is a stated goal) will remain a challenge because when you take out food and fuel, we’re still running at 8% or so. One of the key elements in the fight against inflation is to cut inflation expectations in the future. It cannot be just to bring down inflation to a level that sounds nice (8%) but in reality it’s not low enough to keep expectations low.

While markets may rejoice tomorrow on hopes of a rate cut, it looks unlikely, even though growth has been impacted. At best rates remain at the 8% bound in April, and remain there until inflation sustains below 8% consistently.

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

2 comments “CPI Inflation in Charts: Jan 2014 at 8.79%, Lowest in 25 months”

Could you provide the link of items considered for CPI along with their weightage?


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