Inflation Figures

The inflation figures released today are quite realistic in nature and have confirmed the fears that I have been citing for such a long time. I still differ from the planning commission that food prices will moderate in the coming weeks, it cannot- people do not change food habits so fast. Government will need to look at supply side constraints to contain prices; it is as simple as that. Depending on any kind of monetary policy to contain inflation would be a mistake. The higher food prices will hamper the recovery of the economy in a big way. While the RBI has indicated of higher interest rate regime in the coming months, it would not be enough to contain inflation. It may be counter productive, in the sense that it will further slow down the process of recovery with not much impact on consumer level inflation. We are in a tight and critical situation and each step must be carefully thought off before being executed.

[Note: According to the figures of 5-Nov-2009]