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.

Petrol & Diesel Price Hike

The Cabinet today decided to hike the price of Petrol By Rs. 4 per Lt. and Diesel by Rs. 2 per Lt. The goverment decided not to increase the price of Kerocene and LPG. This is the third price hike by the UPA government after they got into power. The OIL companies were already demanding price hike as much as Rs. 10 per Lt. for Petrol as well as Diesel. The goverment in order to keep the burden off the shoulders of the consumers has plans to float oil bonds and cut sales tax to meet the demands of the oil companies.

The price hike of Rs. 4 per Lt. for petrol is higher than the expected Rs. 2 hike. At the same time the Rs. 2 hike expected for Kerosene was not seen. People accross the country are showing their anger at this price hike. They are complaining that that fuel price hike would create a spiral of price hikes of various goods and commodities.

Price impact of Diesel and Petrol on Metros

Delhi	Rs. 32.45	Rs. 47.51
Kolkata	Rs. 34.87	Rs. 51.07
Mumbai	Rs. 39.57	Rs. 53.50
Chennai	Rs. 35.72	Rs. 50.07

It is important to notice that the goverment had to make this decision because of the high crude oil price. It is said that in the international markets the crude oil has jumped $ 7.5 per bl. from the time of the last price hike. A total relief of Rs. 43,700 cr. is given by the goverment to the oil companies out of which only Rs. 9,200 cr. comes form the price hike and Rs. 6,500 cr. from the sales tax cut of 2.5 %, 10 % to 7.5 %.

Let us hope that this price hike does not change the economic fundamentals of the country. Inflation which is somewhat under control as per the Finace Minister might jump up. This could lead to increase in the interest rates which would put brakes over the economy and we might have say good bye to the 8 % plus GDP growth.

Petrol & Diesel Price Hike

The Cabinet today decided to hike the price of Petrol By Rs. 4 per Lt. and Diesel by Rs. 2 per Lt. The goverment decided not to increase the price of Kerocene and LPG. This is the third price hike by the UPA government after they got into power. The OIL companies were already demanding price hike as much as Rs. 10 per Lt. for Petrol as well as Diesel. The goverment in order to keep the burden off the shoulders of the consumers has plans to float oil bonds and cut sales tax to meet the demands of the oil companies.

The price hike of Rs. 4 per Lt. for petrol is higher than the expected Rs. 2 hike. At the same time the Rs. 2 hike expected for Kerosene was not seen. People accross the country are showing their anger at this price hike. They are complaining that that fuel price hike would create a spiral of price hikes of various goods and commodities.

Price Impact on Metros

	Diesel Price	Petrol Price
Delhi	style="text-align: right">Rs. 32.45	style="text-align: right">Rs. 47.51
Kolkata	style="text-align: right">Rs. 34.87	style="text-align: right">Rs. 51.07
Mumbai	style="text-align: right">Rs. 39.57	style="text-align: right">Rs. 53.50
Chennai	style="text-align: right">Rs. 35.72	style="text-align: right">Rs. 50.07

It is important to notice that the goverment had to make this decision because of the high crude oil price. It is said that in the international markets the crude oil has jumped $ 7.5 per bl. from the time of the last price hike. A total relief of Rs. 43,700 cr. is given by the goverment to the oil companies out of which only Rs. 9,200 cr. comes form the price hike and Rs. 6,500 cr. from the sales tax cut of 2.5 %, 10 % to 7.5 %.

Let us hope that this price hike does not change the economic fundamentals of the country. Inflation which is somewhat under control as per the Finace Minister might jump up. This could lead to increase in the interest rates which would put brakes over the economy and we might have say good bye to the 8 % plus GDP growth.

Q4 FY06 GDP up

The Indian Economy continues to impress with its high growth rates. The Latest numbers were released just few minutes ago by the planning comission. Monteck Singh Ahuwalia just confirmed that the the ecomomic growth shows the strong fundamentals of the Indian Economy. The GDP was stated to grow at 9.3%(yoy) in FY06 vs 8.6%(yoy) in FY05. The numbers for the sectors of economy were equally impressive.

Q4 06. . . .Q4 05

Manufacturing . . . . 8.9% . vs . 8.1%

Construction . . . . 12.1% . vs. 12.5%

Farm Produce . . . . 5.5% . vs . 1.1%

Mining. . . . . . . . . . 3.0% . vs . 3.7%

Electricity . . . . . . . 6.1% . vs . 1.4%

Total Q4 FY-06 . . 8.9% . vs . 8.1%

Let us just hope that the long term fundamentals of the Indian Economy is intact and we would continue to be the favorite destimation for the foriegn capital inflows in the emerging markets. Indian share market seem to be supported by the New Age Indian Economy which seems to be next only to the China in terms of growth and potential.