The article includes some statistics on the huge difference in price trends on various food items in India:

“The cost of bananas in New Delhi is up 50 percent over the year, while paneer – a form of cottage cheese – has risen 26 percent to 145 rupees per kg.

Yet other food prices are falling. Staples such as tomatoes and potatoes, which peaked earlier in the year at levels that caused great stress to poorer families, have seen prices moderate in recent weeks.”

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The RBI has a laser focus on keeping inflation expectations contained. Although inflation seems to have peaked, the RBI remains worried that it needs to “…end the prevalence of negative real interest rates.”

From today’s statement:

“Inflation remains the dominant concern in macroeconomic management…inflation rates have reached a plateau, but are likely to remain at unacceptably high levels for some months. While prices of food articles, which according to the new series, rose by over 14 per cent in August, are still contributing to the pressure, about two-thirds of the August inflation can be attributed to items other than food articles and products. Notwithstanding slight moderation in August 2010, the headline inflation remains significantly above the trend of 5.0–5.5 per cent in the 2000s. There is, therefore, need for continued policy response to contain inflation and anchor inflationary expectation.”

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“According to industry observers, mining firms are entering into supply contracts with steel makers for the April-June quarter at about $110-120 a tonne, which is an increase of 80-100 per cent from the levels of 2009-10 annual contracts.”

Apparently, these latest price increases are leading to price hikes in consumer goods and construction that rely on steel-based inputs. However, Steel Minister Virbhadra Singh is not worried about inflationary pressures:

“‘There has been a spurt in steel prices in the domestic market recently but it is a temporary phenomenon and at present there is no inflationary concern.’”

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Sugar prices are riding a rollercoaster of scarcity and abundance. Monsoons in India forced the world’s largest consumer of sugar to import it. This year, sugar crops are expected to produce a large bounty from India and Brazil. See “Indian sugar stocks turn bitter as output seen rising” for more details.

The post Sugar prices continue to plunge appeared first on Inflation Watch.

Opposition lawmakers yesterday accused the government of being ineffective in tackling soaring food prices and disrupted parliament, forcing the speaker of the lower house to adjourn for the day.

Look for India’s central bank to raise interest rates after its next meeting in January 2010.

Exit question: Will rising inflation in India have any effect on the inflation rate in other countries?

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The post Prices continue to accelerate in India appeared first on Inflation Watch.

What a difference five months makes. Now both inflation and inflationary expectations are rising fast.  As India Knowledge@Wharton noted:

The IMF, which in March 2009 projected inflation of just 2% for the fiscal year ending March 2010, now sees inflation at 8.7% for the calendar year of 2009. In October, its Regional Economic Outlook warned: “In India … industrial production is recovering rapidly, and core inflation and inflation expectations are rising.”

India, of course, is the region’s largest and most geopolitically important country. But according to AFP, it’s not just India that has experienced an abrupt increase in inflation. The entire south Asia region is under siege:

In the third quarter of 2009, inflation in South Asia, which aside from the Maldives comprises India, Pakistan, Nepal, Bangladesh, Afghanistan, Sri Lanka and Bhutan, hit an average 10.9 percent, the World Bank said.

The biggest cause: skyrocketing food prices. In India, for example, the price of sugar has increased 45.7 percent from last year. The price of potatoes is up 96.4 percent. The price of onions: up 37.6 percent.

Another cause: rising electricity prices. In Pakistan, a restaurant owner claims his electricity bill has doubled since General Pervez Musharraf was forced to resign just over a year ago.

Not surprisingly, the middle class has noticed. As AFP notes, higher prices for basic staples like food and energy are increasing dissatisfaction with a Pakistani government that had already been unstable:

In a country with huge disparity in wealth, life has always been a struggle for the third of the population that lives below the poverty line but now lower-middle class and professional families find it increasingly difficult to make ends meet.

The rupee has depreciated by 35 percent in the last year while electricity, gas and petrol prices have doubled in the last two. The country faces a crippling energy crisis, producing only 80 percent of its power needs, causing debilitating blackouts and suffocating industry.

Price hikes and shortages of essential items such as sugar and flour complicate housekeeping and exacerbate the rock-bottom unpopularity of President Asif Ali Zardari, head of the Pakistan People’s Party (PPP).

The experience of India, Pakistan, and other south Asian countries offers two helpful reminders. First, when inflation arrives on the scene, it can spiral out of control  more quickly than just about anyone expects. Second, inflation is not just an economic problem, but also a political one.

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“We believe that the economy is in the early stages of an inflation pick-up. With input cost pressures building and domestic demand in recovery mode, output prices should follow suit,” Sonal Varma, economist at Nomura, wrote…. Nomura revised its average inflation forecast for 2009/10 to 3 percent from 2 percent and for 20010/11 to 6.8 percent from 5.7 percent. It also revised its consumer price inflation estimate for 2009/10 to 10.8 percent for FY10 and 6.8 percent for FY11.

In a separate article, the Wall Street Journal noted that prices are rising not only in India, but also in South Korea and Indonesia:

While the West still worries about the ravages of deflation, emerging markets in Asia are beginning to contemplate what to do about the opposite problem: inflation.New figures released Thursday from Korea, Indonesia and India all show prices increasing, a sign that these economies have turned the corner and beaten deflationary pressures for now. It also confirms the likelihood that those countries will be among the first to raise interest rates as soon as this year.

After a larger-than-expected increase in wholesale prices Thursday, India’s finance minister, Pranab Mukherjee, warned “there is inflationary potentiality and inflation may go up further,” he said. “When it goes up it is a matter of concern….”

[T]he latest data confirm that Asian central bankers have to start thinking about applying the brakes to prevent economies from overheating. Interest rates in most countries are at record low levels and need to rise sharply to get back to levels associated with average growth rates.“Clearly the period of falling inflation is over for emerging markets,” says UBS economist Jonathan Anderson. “We are at the inflection point.”

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