Inflation Higher than Expected

The latest Wholesale Price Index now at 203 is out showing a sharp increase of 52 bps in the inflaion. On year on year calculation the inflation is at 5.24% vs 4.72% just weeks ago. This is a higher than the moderate inflation of just 4.72%. The RBI had earlier commented that it will try to control inflation below the 5% mark. This gives us a stong hint that the RBI will raise interest rates by atleast 25 basis points to control the inflation. The finance minister P. Chitambaram also commented that the monetary policy change is necessary to keep inflation in check.

The Current trend is similar to the Global markets where inflationary preassures and forcing central banks to raise the levels of interest rates. In US the higher than expected consumer price index created an alarm for the expected interest rate hike by the US fedral reserve.

The US inflation is due to the high crude oil prices of arround $70 - $75 per barrel. In India the goverment tried its best to isolate itself from the high crude oil prices but eventually when the prices for petrol and disel were hiked costs went up in unimaginable manner.

This high inflation would result in higher interest rates which will affect everything from stock markets, bond markets to commodities. Let us hope that this spiralling affect would not lead to a Global Bear Market accross all asset classes.