INFLATION PROJECTION MARCH 2012......14 APRIL 2012

FIRSTLY LOOK KEEP EYE ON INFLATION THAT WHAT IS INFLATION AND HOW IS IT CALCULATED :-

What is inflation? 

Inflation rate is the rate at which prices of goods and services increase in its economy. It is an indication of the rise in the general level of prices over time. Since it's practically impossible to find out the average change in prices of all the goods and services traded in an economy due to the sheer number of goods and services present, a sample set or a basket of goods and services is used to get an indicative figure of the change in prices, which we call the inflation rate.

How does India calculate inflation?

In India, inflation is calculated on a weekly basis. India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.

WPI was first published in 1902, and was one of the more economic indicators available to policy makers until it was replaced by most developed countries by the Consumer Price Index in the 1970s. 

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.

Characteristics of WPI :-

Following are the few characteristics of Wholesale Price Index:

• WPI uses a sample set of 435 commodities for inflation calculation
• The price from wholesale market is taken for the calculation
• WPI is available for every week
• It has a time lag of two weeks, which means WPI of the week two weeks back will be available now

KEEP EYE ON INDIA INFLATION RATE :-

The inflation rate in India was last reported at 8.8 percent in February of 2012. From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

INDIAN INFLATION RATE ON CHARTS :-

  INDIAN INFLATION TREND FROM 1969 TO 2012 ON EVERY 8 YEARS BASIS

INDIAN INFLATION FROM 2006 TO 2012

INDIAN INFLATION RATE FROM 2010 TO 2012

CHART ANALYSIS:-

 AFTER ANALYZING THE ABOVE CHARTS IT IS CLEAR THAT INDIAN INFLATION RATE IS LOOKING FOR DOWNWARDS. BEARISH TREND IS LOOKING ON CHARTS. INDIAN INFLATION RATE CHART FROM 1969 TO 2012 SHOWS THAT HOW MUCH INFLATION WAS VOLATILE IN LAST 42 YEARS AND THREE MAJOR FALL SHOWS ALSO. INDIAN INFLATION CHARTS FROM 2006 TO 2012 SHOWS THAT BEARISH HEAD & SHOULDER PATTERN HAS MADE ON CHARTS CLEARLY INDICATES INFLATION WILL BE DOWN IN COMING COUPLE OF MONTHS. IN THE MONTH OF FEB 2012 IT WAS @ 8.8%, SO IT IS EXPECTING THAT INFLATION IN MARCH 2012 WILL BE BELOW 8%, IF IT COMES BELOW 8% THEN IT WILL POSITIVE FOR THE ECONOMY.

FUNDAMENTAL ANALYSIS  :-

Reuters Poll :-

India's wholesale price inflation rate likely slowed marginally in March as easing price pressures from non-food items offset persistently high food and fuel costs, a Reuters poll showed. 

The median consensus from a survey of 30 economists pinned expectations for headline inflation at 6.70 percent for March from a year ago, under the higher-than-expected 6.95 percent recorded in February. 

After staying above the 9 percent mark for a year, inflation started cooling last November and hit a 26-month low of 6.55 percent in January, stoking market expectations of a rate cut by the Reserve Bank of India (RBI). But with global oil prices soaring and Brent oil futures hovering stubbornly near the $120 mark, the risk of climbing inflation has again appeared. 

India is heavily dependent on crude oil imports to meet its fuel requirements and, as global oil prices rise, higher transportation costs push up the price of goods. "It is still suppressed inflation in India (because) the complete global crude oil impact has not been passed to the end consumer," said Arun Singh, at Dun & Bradstreet, who expects inflation to remain elevated for at least another month or two. 

An increase to the service tax by the government in its March federal budget may also add to inflationary pressures in the coming months by pushing up production and input costs. Forecasts in the Reuters survey for March ranged from 6.30 to 7.02 percent, suggesting that, while inflation is not about to go off the central bank's radar, it will remain well below the 9 percent levels.

According to Moody's Analytics :-

Senior Economist at Moody’s Analytics Glenn Levine believes the RBI’s hands are tied with respect to rate cuts if inflation at the wholesale level continues to remain around the 7% mark.

ICRA View on Inflation :-

ICRA expects headline inflation related to the wholesale price index (WPI) is likely to have peaked and would decline to around 7.0% by March 2012, unless commodity prices increase sharply in the coming months. However, a further depreciation of the Indian rupee beyond current levels would exacerbate inflationary pressures.

So, over all conclusion is Inflation in March 2012 will be below 8% and will be between 7% to 6%