Inflation And Inflation In India

Inflation and Inflation in India Prof. M K Sahoo

• WPI Inflation is released every weekend on Thursday afternoon, by CSO. • WPI inflation released on a particular date is a figure which is lagged by two weeks; for example, figure released on 4th April 2008 is inflation rate of March 22nd 2008. • ..that is data available today is in fact two weeks older. • The current weekend inflation rate is an index of price rises over the corresponding weekend of last year. • Hence this is called year-on-year inflation or point-topoint inflation rate.

Decadal Trends in Wholesale Prices Inflation Annual Average Inflation Rate (%)

Co-efficient of Variation in Inflation

1950s

1.7

4.4% (fairly high)

1960s

6.4

1970s

9

1980s

8

1990s

8.15

1990-95

11

1995-99

5.3

Decades

0.4-1.0% (narrow range)

Calculation of WPI Index Price at Base Year 1993-4

Item

P0

Price at previo u s yr

P1

Price at Current yr

P2

Value weights

Base year Index (WPI0)

Prev. year Index (WPI1)

Wi

(P0/P0)*100* Wi

(P1/P0)*100* Wi

Inflation Rate

[(WPI1-WPI0)/ WPI0]*100

Current yr Index (WPI2)

(P2/P0)*100*Wi

1

10

12

13

0.076

7.64

9.17

9.88

2

23

24

23

0.153

15.29

15.95

15.30

3

53

55

54

0.350

35.03

36.35

35.66

4

47

51

55

0.325

32.48

35.25

38.03

5

11

15

18

0.096

9.55

13.03

15.71

1 (100%)

100

109.75

Sum Total

157

9.75 %

114.58

Current Inflation Rate

{(WPI2WPI1)/W PI1}*100

4.40

Calculation of Core Inflation after removing food and fuel (item 1&5) which are having higher price rise. Price at Base Year 1993-4

Item

Price at Current year

P0

P1

Value weights Wi

Calculation of Base year Index (WPI0) (P0/P0)*100*Wi

Calculation of Current year Index (WPI1)

Inflation Rate

(P1/P0)*100*Wi

[(WPI1-WPI0)/ WPI0]*100

---

----

--

-- --

--

--

2

23

24

0.153

15.29

15.95

3

53

55

0.350

35.03

36.35

4

47

51

0.325

32.48

35.25

--

--

--

--

--

--

130

0.828

82.80255

SUM

--

--

87.55 5.74 %

Growth & Inflation as on mid-March ’08 Source: ET, 28 Mar ‘08

• •

GROWTH SNARLS With prices threatening to spin out of control, govt gets ready to slam the brakes on India’s growth run. On the cards: a hike in interest rates & duty rejigs.

Contemporary Inflation in other countries & Industrial slow down in India

•

Govt ready to sacrifice growth to tame prices: FM Slew Of Fiscal, Monetary & Supply-Side Steps Likely

•

AN INCREASE in the cost of funds for borrowers appears imminent with finance minister P Chidambaram announcing the government’s willingness to sacrifice growth for lower inflation. The finance minister also said the government would curb price rise through a combination of fiscal, monetary and supply side measures. Responding to the 6.68% rise in the wholesale price index, Mr Chidambaram said, “I assure you that the government is determined to take fiscal, monetary and supply side measures to tackle inflation. If that means we have to live with a slightly lower growth rate, so be it.” Speaking at several events in Mumbai on Friday, the finance minister repeatedly referred to a growth target of 8%. He said he expected the economy to grow at this rate in the current quarter and continue to grow at this rate in the next fiscal. At an Indian Merchants’ Chamber event, the finance minister virtually admitted that imports alone would not curb inflation. “A country as large as India can never be dependent on importing food. We have to be nearly self sufficient in every item we consume. Last year, we imported small quantities of wheat. This year can we import wheat? Every country in the world has banned exports, even if we want to we cannot import wheat.” Monetary tightening is also likely given that the government is worried about rising inflationary expectations. “We also have to curb inflationary expectations. When wholesalers or retailers hoard wheat or rice they are feeding inflationary expectations,” he said. One of the ways to bring down inflationary expectations is to increase the cost of funds and thereby make it difficult for traders to hoard commodities in hope of better prices. Speaking on the sidelines, HDFC chairman, Deepak Parekh, said that interest rates could go up because of inflation. While the finance minister referred to interest rates, money markets also expect the Reserve Bank of India to use an even more blunt instrument — the cash reserve ratio. An increase in the cash reserve ratio would suck out liquidity immediately, pushing up cost of funds and thereby curbing demand. The government also seems to have accepted that high growth in India is partly contributing to inflation. ‘Full cycle: Low interest rates will return soon’ “IF YOU speak to someone from the West, they will say that it is the high growth demand from China and India that is driving up commodity prices. We are growing and we are consuming more so in a way we are contributing to the rise in prices,” said Mr Chidambaram. The finance minister assuaged the sentiments of businesspersons present there. He said that while they were concerned about high interest rates, slowing consumption and shrinking export markets, they had to realise that just as businesses go through cycles, these cycles end and low rates would return after inflationary expectations ease. Earlier in the day, speaking at the launch of Icap’s bond trading platform, Mr Chidambaram said concerns about FIIs investing in corporate debt are more about monetary management. “Corporate bonds are debt instruments so RBI is necessarily cautious about expanding FII access to them. We have increased the level to $1.5 billion already, and there is scope to increase it further if there is a requirement — but it is something the regulators have to decide.” He added BSE and NSE have been asked to adopt the DVP-III (delivery versus payment III) mode for corporate debt transactions as this will ensure an efficient payment and settlement system. It is also a prerequisite to facilitate repo operations on corporate bonds. “I hope repo operations get introduced soon, as it will enhance liquidity,” said Mr Chidambaram.

Price rise from Mar ’07 to Mar ’08 ET- Saturday, 29 Mar ’08

DOMESTIC WOES 20% JUMP IN PRICE OF RICE IN INDIA 40% RISE IN PRICE OF VANASPATI IN INDIA IN A YEAR 6% SURGE IN SUGAR PRICE IN INDIA 20% RISE IN PRICE OF TUR IN INDIA IN A YEAR •

However, the government is not leaving anything to chance. Rice exports have been further disincentivised by raising the minimum export price of non-basmati to $1,000 per tonne and removal of DEPB credit to non-basmati contracts. Export of edible oils have been banned to improve local supply. Options will be placed in Chicago for wheat import later in the year. Food prices have been spiralling out of control. There has been a 20% jump in domestic rice and tur prices in a year. Mustard oil has gone up by more than half while vanaspati — the mainstay of food processors and restaurants — is up 40%. Even sugar prices have increased 6%. This is ironical because the consumer is paying more for sugar while the government is paying sugar mills extra cash for holding on to sugar stocks.

Wheat, oils & pulses likely to get cheaper in a global village, ET- Saturday, 29 Mar ’08 •

SPECULATORS AND LARGE FUNDS EXIT POSITIONS IN NEW YORK & CHICAGO FOR India, the crash in global commodity prices comes as an answer to a prayer. Import of wheat, cooking oil and pulses are now likely to be cheaper as speculators and large funds exit positions in New York and Chicago over the last fortnight. The best part is that those who just joined the party and bought high have been scalded and probably won’t be returning anytime soon. The liquidity crisis in the financial markets will also now ensure that the punters do not return soon enough. Commodity markets were the first to see a rush to the exit door after the equity market meltdown because of its highly liquid nature. Demand for margins and markto-market in equities forced the large punters to encash their positions and leave commodities virtually overnight. “The markets went into a free fall when hedge funds exited the market because they had artificially raised commodity prices. There was no support from the physical market for those prices. Once the futures prices see a correction and are better aligned to physical fundamentals, offtake in the markets will resume,” a market watcher said.

Contd… •

Meanwhile, a quick look at the CFTC’s March 18 commitment of traders report shows that both non-commercial traders (or, speculators) and index funds are reducing their total positions rapidly. The biggest cuts are in corn and wheat, where those with long positions have been caught on the wrong foot. In fact, index fund traders are virtually the only ones left with large long positions in the wheat market, mainly due to their model of trading. Commercial traders are going heavily short in wheat, i.e., they are betting on commodity prices declining further in future. However, opinion on wheat prices appears to be sharply divided among wheat punters. Their long and short positions were equal on CBoT this week. The prices of wheat, soya bean oil and corn in the world markets have come off last year peaks now that easy money has exited commodity markets. Wheat dipped below the $10-bushel mark for the first time in almost a year. That has made it easier for physical traders and buyers to once again enter the commodity markets. So, the subsequent price increases occurring this week in wheat and soya bean oil are more due to physical demand-supply fundamentals rather than speculative activity.

Economists divided over prescription ET- Saturday, 29 Mar ’08

THE government may have to resort to a new round of measures to rein in inflation, according to economists. Fiscal concessions could include tax cuts targeted at specific commodities like metals and food products. Further measures could be in the offing to disincentivise exports, to follow up on the hike on Thursday in the minimum export price of rice, for example, in export duty. However, opinion is divided among economists on whether to hike interest rates. It would only constrain supply further, goes one school of thought. According to prime minister’s Economic Advisory Council member Saumitra Chaudhuri, the government has to explore different policy options in the case of different commodities. “There is no easy way of tackling high inflation. If the duty on some manufactured goods is already low or the international price is very high, a duty cut can do little to soften prices. All options — fiscal, monetary and others — are on the table,” said Mr Chaudhuri. The Reserve Bank of India (RBI) has maintained its main lending rate, the repo rate, steady at 7.75% for a year now, after raising it five times between June 2006 and March 2007 to keep price rise under check. RBI deputy governor Rakesh Mohan described the inflation for the week ended March 15 as “higher than anticipated”. “The sharp rise in inflation in March is a result of short supply and hence the government might look at supply side measures to give immediate relief to consumers. The spike in inflation is not the result of a spurt in demand and hence raising the interest rate cannot be of much help. I do not think RBI may venture to raise rates now,” said Crisil director and principal economist DK Joshi. According to HDFC Bank chief economist Abheek Baruah, the immediate step to be taken is to ensure that commodities which are under price pressure are made available at a lower price. “The government has already started this process. But more could be done in terms of curbing exports of commodities like iron, steel and cement and in lowering import tariffs of some primary products like oil seeds. I do not think this is an easy solution but at this stage, a simple mechanical upward revision of interest rate is not what is required. The central bank has to adopt a very fine judgement. I would strongly argue against raising interest rates now,” Mr Baruah said. On March 20, the government had slashed import duty on crude palm oil, including crude palmolein, from 45% to 20% and that on refined palm oil from 52.5% to 27.5 %. While global crude prices have surged almost 72% since the beginning of last year, prices of wheat and rice, too, have spiralled. “In line with the global trend, inputs such as metal, rubber, machinery and machinery tools are putting pressure on manufacturing companies to revise the prices upward. Besides, the higher borrowing cost has forced them to lower production,” Icra vice-chairman PK Chaudhary said. With the rupee conceding much of its recent might, the benefit of a strong currency working as a cushion on the import bill too is not there now, said Mr Joshi. The local currency clawed back to 39.89/90 on Friday after about a month and closed with a gain of 20.50 paise from its previous close. All eyes now on

RBI reaction

Mumbai: The Reserve Bank of India (RBI) may now be the focus of all attention with the headline inflation rate touching a high of 6.68%, a 14-month high. Expectations now centre around the policy action that RBI may take recourse to soon. The conventional wisdom is to hike interest rates to combat inflation as it results in lowering prices and demand. But such a recipe may not work now, say economists. — Our Bureau

GoM on food prices meets on Wednesday • • • • • • • •

A GROUP of ministers (GoM) is scheduled to meet here on April 2 for considering measures to check spiralling food prices. These include duty cuts on soybean oil, reviewing the efficacy of the minimum export price imposed on premium nonbasmati rice and, for the first time, basmati varieties as well. Given the fast-changing global commodity price situation, the GoM is likely to meet almost weekly to ensure the government reacts quickly to emerging situations. Describing the meeting as a “stock-taking session”, government sources said although an export tax (cess) was needed to curb overseas sales, this move did not had political backing. Despite that, a ban on all non-basmati rice exports is not expected at this juncture. The GoM is also likely to clarify the notification for banning non-edible oils such as castor oil and mango kernel oil. These will continue to be exported, it is highly unlikely that the GoM will buckle under pressure from traders to lift the export ban on premium coconut oil, groundnut oil and mustard oil.

Govt unveils measures to fight inflation Government scraps edible oil import duty, tightens rice exports: ET,1 Apr, 2008 •

Government has scrapped import duties on edible oil and tightened restrictions on rice exports to rein in inflation that hit a 13-month high of 6.68 per cent last week, a government spokesman said on Tuesday. Finance Minister P. Chidambaram’ Measures : • import duty on all crude edible oil would be slashed to zero with immediate effect, while the duty on oils in the refined form would be 7.5 %. • It also cut import duty on butter and clarified butter (ghee) from 40 % to 30%. • Import duties on maize was cut to zero from 15 %, • while a ban on exports of pulses was extended for 12 months. • All exports of non-basmati rice would be stopped, • and the minimum export price for basmati hiked to $1,200 per metric tonne from $1,100. • Country had already halted most non-basmati rice exports before the federal cabinet meeting, but had continued some sales to countries such as Sri Lanka and Bangladesh which face acute shortages. • On Monday, Bangladesh said it will import 400,000 tonnes of non-basmati rice from India at $430 per tonne by the end of May to sell below cost on the open market in a bid to ease spiralling prices. The Union Government also advised states to impose limits on stocks of commodities under the Essential Commodities Act, besides asking steel producers not to raise prices. Pressure has been mounting on government to introduce with nearly a dozen states going to the polls this year and national elections due by May 2009. On Sunday, communists, Bharatiya Janata Party threatened to launch country-wide protests from April 7 if the government did not act fast enough to control the price rise.

WPI Inflation in FY 2008-09 Quarterly avg:1st (--), 2nd (--), 3rd (--), 4th (--). Annual Avg: 4.50% Date

Index

Inflation Rate

5/4/08

226.6

7.14

12/4/08

226.9

7.33

Date

Index

Inflation Rate

Date

Index

Inflation Rate

Date

Index

Inflation Rate

WPI Inflation in FY 2007-08 Quarter avg:1st (5.30), 2nd (4.07), 3rd (3.44), 4th (5.20). Annual Avg: 4.50% Date

Index

Inflation Rate

Date

Index

Inflation Rate

Date

Index

Inflation Rate

Date

Index

Inflation Rate

7/4/07

211.5

6.44

7/7/07

213.3

4.61

6/10/07

215

3.22

5/1/08

217.6

4.26

14/4/07

211.4

6.34

14/7/07

213.6

4.76

13/10/07

215

3.07

12/1/08

217.8

4.36

21/4/07

211.5

6.07

21/7/07

213.7

4.65

20/10/07

215.3

3.11

19/1/08

218.2

4.45

28/4/07

211.6

6.01

28/07/07

213.9

4.70

27/10/07

215.4

3.11

26/1/08

217.6

4.11

5/5/07

212

5.74

4/8/07

213.8

4.39

3/11/07

216.1

3.35

2/2/08

217.4

4.07

12/5/07

212.4

5.62

11/8/07

213.7

4.24

10/11/07

215.8

3.20

9/2/08

218.1

4.35

19/5/07

212.4

5.30

18/08/07

213.7

3.99

17/11/07

216

3.35

16/2/08

218.8

4.89

26/5/07

212.3

5.15

25/8/07

213.9

3.94

24/11/07

215.6

3.11

23/2/08

219.5

5.02

2/6/07

212.5

5.09

1/9/07

214.8

3.72

1/12/07

216.3

3.89

1/3/08

220

5.11

9/6/07

211.8

4.28

8/9/07

215

3.46

8/12/07

216.3

3.84

8/3/28

221.8

5.92

16/6/07

211.9

4.13

15/9/07

215

3.51

15/12/07

216.4

3.84

15.3.08

223.6

6.68

23/6/07

212.4

4.32

22/9/07

215.2

3.51

22/12/07

216.4

3.74

22-3-08

224.8

7.0

30/6/07

212.8

4.42

29/9/07

215.3

3.36

29/12/07

216.7

3.83

29-3-08

226

7.41

WPI Inflation in FY 2006-07 Quarterly avg:1st (3.99), 2nd (4.62), 3rd (5.08), 4th (6.38). Annual Avg: 5.02% Date

Index

Inflation rate

Date

Index

Inflation rate

Date

Index

Inflation rate

8/4/06

198.7

3.81

8/7/06

203.9

4.83

7/10/06

208.3

15/04/06

198.8

3.70

15/7/06

203.9

4.62

14/10/06

22/04/06

199.4

3.85

22/7/06

204.2

4.72

29/04/06

199.6

3.90

29/7/06

204.3

6/5/06

200.5

4.37

5/8/06

13/05/06

201.1

4.63

20/05/06

201.7

27/05/06

Inflation rate

Date

Index

5.36

6/1/07

208.7

6.37

208.6

5.46

13/1/07

208.7

6.15

21/10/06

208.8

5.61

20/1/07

208.9

6.31

4.72

28/10/06

208.9

5.35

27/1/07

209

6.69

204.8

5.08

4/11/06

209.1

5.45

3/2/07

208.9

6.58

12/8/06

205

5.07

11/11/06

209.1

5.39

10/2/07

209

6.52

5.05

19/8/06

205.5

5.12

18/11/06

209

5.56

17/2/07

208.6

6.05

201.9

4.99

26/8/06

205.8

5.27

25/11/06

209.1

5.55

24/2/07

209

6.20

3/6/06

202.2

4.88

2/9/06

207.1

5.34

2/12/06

208.2

5.36

3/3/07

209.3

6.51

10/6/06

203.1

5.29

9/9/06

207.8

5.22

9/12/06

208.3

5.63

10/3/07

209.4

6.51

17/06/06

203.5

5.50

16/9/06

207.7

5.27

16/12/06

208.4

5.73

17/3/07

209.6

6.56

24/06/06

203.6

4.84

23/9/06

207.9

5.43

23/12/06

208.6

5.78

24/3/07

210.1

6.54

1/7/06

203.8

5.21

30/9/06

208.3

5.41

30/12/06

208.7

5.89

31/3/07

210.4

5.94

Trend of Weekly Inflation Rates: 2006-7 & 2007-8 Trend of Weekly Inflation Rates: 2006-7 & 2007-8 8

Inflation rate %

7 6 5 4

2006-7

3

2007-8

2 1 0 1

4

7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week

2006-07 April

2007-08

March

April

March

3.81

6.51

6.44

5.11

3.7

6.51

6.34

5.92

3.85

6.56

6.07

6.68

3.9

6.54

6.01

7

5.94

Avg

3.815

Avg

6.412

7.41

Avg

6.215

Avg

6.424

WPI Inflation in calendar 2005-6 Date

Index

Inflation rate

7/1/06

196.2

3.86

14/1/06

196.6

4.19

21/1/06

196.5

4.24

28/1/06

195.9

4.04

4/2/06

196

3.98

11/2/06

196.2

3.81

18/02/06

196.7

4.13

25/2/06

196.8

4.18

4/3/06

196.5

3.86

11/3/06

196.6

3.80

18/03/06

196.7

3.69

Inflation Inferno: We are the world • •

• • • • • • • • • • • • • • •

ET- Saturday, 29 Mar ’08 CONSUMERS in India are not the only ones who have to pay more for essentials such as food, housing and energy. Rather, Indian consumers appear to be relatively protected from the impact of spiralling prices of food, energy and commodities compared with their counterparts in other emerging nations such as China and Russia. In China, the consumer price index (CPI) rose 8.7% in February 2008 compared with 2.7% a year ago due to higher prices of food. Likewise, in Russia, prices climbed 12.7% from 7.6% in February 2007. Even consumers in the oil-rich West Asian countries have not been spared the impact of rapidly rising prices, although they are not hurt by the surge in prices of petroleum. For instance, CPI inflation in Saudi Arabia rose to 9.8% in February from 5.7% a year earlier. The steepest increases in the CPI were experienced in Hong Kong, where prices rose 6.3% in February from 0.8% a year ago, and in Singapore, where inflation was at 6.5% last month against 0.6% a year ago. Prices rose 3.9% in Taiwan after declining 2.2% in February 2007 while in Pakistan, CPI was up 11.3% (7.4% a year ago). The scenario in Latin America is mixed. Mexico and Argentina reported slower rise in inflation at 3.7% and 8.4%, respectively, compared with 4.1% and 9.6% a year ago. Brazil reported a moderately increasing rate (4.6% from 3% a year ago) while Chile experienced an 8.1% rise in CPI compared with 2.7% a year ago and Venezuela 25.2% against 20.4% last year. The developed world has also not been spared the rise in prices. Japan on Friday reported that consumer prices rose at the fastest pace in a decade, with core prices, which exclude fruit, fish and vegetables, climbing 1% in February from a year earlier. The Europe area, too, has seen prices rise faster: 3.3% in February 2008 against 1.8% a year ago and in the US, CPI rose 4% against 2.4% in the same period in the previous year.

World foodgrain stocks down to the lowest since 1980s ET-10 Apr, 2008

• •

•

• • •

Welcome to the New World defined by food demands. In just a few years from now, your roti-chawal could be sourced in a sustained manner from the African continent as part of a food JV. This is because the world has only enough wheat and rice to feed its population for 12 weeks and enough maize for food and feed for three weeks. World foodgrain stocks are down to the lowest since the 1980s and there is little good news on the foodgrain availability or the price front in near future. In an effort to strike that acceptable balance between farm business and the bioenergy Armageddon that has overwhelmed global agriculture — pressuring food prices worldwide — countries will debate a proposal to put optimum farmland under food crops as urgently as foodgrain land went under biofuel in the last decade. Mutually-advantageous JVs in food production between far-flung countries could be one way to checkmate the elements of an impending crisis now looming over poorer countries. “We need JVs to fuel food production, urgently,” heads of UN agencies said here, maintaining that wrong policies of governments on food and related inputs had led to this pass on the food front worldwide. Now, they asserted, it is imperative to increase investment in rural and farm infrastructure and to facilitate small farmer access to inputs.

World foodgrain stocks contd… •

•

•

• • • •

That proposal — meant to trigger a long term global correction of the biofuel factor in the world food economy — will be discussed at an emergency FAO-sponsored meeting of State heads to assess the impact of climate change on world food production and supply and the unabating food price hikes. Some 100 m tonnes of cereals were sacrificed at the altar of the bio-fuel monster in 2006 alone, according to the FAO. While agribiz was imperative to tap the optimum out of the farm sector, it is food that is basic to all human existence and needs to take precedence. Painting a bleak picture, the organisation’s DG Dr Jacques Diouf, here for the first global forum on agro industries (GAIF), emphasised that world food prices were unlikely to let up in the short term and could even trigger off food-related riots in parts of the world. “World food prices have risen 45% in the last nine months and there serious shortages of rice, wheat and maize. The rise in food prices is not going to ease in the short term in view of the tight demand-supply situation,” Dr Diouf said Further he warned that worse could follow by 2020 when the world’s population would increase by leaps and bounds, unless a long term global roadmap was drawn up urgently. The world food situation, he said, was “very serious today” with food riots reported from many countries like Egypt, Cameroon, Haiti, Burkina Faso and Senegal. “If the food situation is bad now, it could be much worse by 2020,” he stressed, pointing to a combo of factors for the surge in food prices.

Govt issues Rs 9,297 cr oils bonds ET- Saturday, 29 Mar ’08

• •

• • • •

The government on Friday issued bonds worth Rs 9,296.9 crore to stateowned oil companies to partly compensate them for selling fuel at subsidised prices. A finance ministry statement said bonds would be issued to Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL) and Oil and Natural Gas Corporation of India (ONGC). The 8.40% oil marketing companies’ Government of India special bonds, 2025 would not be eligible for meeting the statutory liquidity reserve requirements of banks, a government statement said. Bonds worth Rs 9076.41 crore are being issued to four oil marketing companies as compensation towards estimated losses during the current financial year. Bonds are being issued at par to IOC for Rs 5,121.62 crore, BPCL for Rs 2,078.92 crore, HPCL for Rs 1,899.01 crore and to ONGC for Rs 197.37 crore. Bonds worth Rs 197.37 crore is being issued to ONGC and worth Rs 23.14 crore to IOC for settlement of contingent liabilities.

Zimbabwe annual inflation over 100,000% on 20 Feb ‘08 • JOHANNESBURG: Zimbabwe's annual inflation rate has soared to over 100,000 %, according to official figures obtained on Wednesday. • "The year-on-year inflation rate for the month of January 2008, as measured by the all items CPI stood at 100,580.2%, gaining 34,367.9 percentage points on the December rate of 66,212.3%," the Central Statistical Office said in a statement.

Steel prices slashed to dent inflation ET-4 April 08

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Cos Agree To Cut Prices Of Galvanised Corrugated Sheets, TMT Bars; Plan To Import Intermediate Products THE country’s top steel producers, including Tata Steel, SAIL and Jindal Steel, on Thursday decided to roll back the prices of long steel products, including construction-grade TMT bars by Rs 2,000 per tonne. The price cuts would be implemented immediately. The reduction in prices of long products is part of the package brokered by the steel ministry with main steel producers with the aim of providing relief to the common man by lowering prices of steel products directly used by him. Accordingly, the steel companies have also agreed to reduce the price of galvanised corrugated (GC) sheets used as roofing material for low-cost housing. The steel companies have also agreed to address the issue of supply constraints resulting in higher prices of steel. The main steel producers would now import the requirement of intermediate products like hot-rolled (HR) coils under advance licensing scheme for producing high-grade steel and GPGC sheets, colour coated steel and cold-rolled (CR) coils. “This is expected to unlock an additional two million tonnes of HR coils in the domestic market that would otherwise have gone into producing high-grade steel meant for exports,” steel secretary R S Pandey said after the meeting with steel producers. The meeting was attended by representatives from Tata Steel, SAIL, Jindal Steel & Power, JSW Steel, Essar Steel, Ispat Industries, RINL and Bhusan Steel. The companies have agreed to increase allocation of steel for small-scale industries corporations by 20% from a level of 5 lakh tonne to 6 lakh tonnes. This would improve the availability of steel for the SME sector downstream industries. Moreover, the companies have also agreed to bear a cost of Rs 400 on per tonne transportation of steel to this segment apart from Rs 500 per tonne subsidy available from funds of joint plant committee (JPC). Similarly, package has also been worked out for tiny units requiring one, two or three tonne of steel. The steel ministry has also advised companies to go in for long-term contracts with consumers to prevent frequent price fluctuation from affecting industry. “We are not rolling back prices of TMT bars. Its price has already softened and we are just matching the price through this cut,” Tata Steel chief operating officer H M Nerurkar said. The decision to roll back TMT prices by Rs 2000 per tonne would be implemented by Tata Steel and RINL as SAIL’s price in this category is already low. The three are main long product producers in the country. “We will hold prices of long products despite rise in input cost as this category directly affects a common man,“ SAIL chairman S K Roongta said. Ispat Industries managing director Vinod Mittal said the decisions would help people who were suffering the most in this period of price rise. “The package addresses the main issue of mismanagement that has resulted in high price of steel at least for small and medium sector.

Steel prices slashed to dent inflation

India, China would fare better amid slower world growth: IMF ET-10 Apr, 2008

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WASHINGTON: India, China and other emerging economies are likely to weather better the unfolding financial market turmoil even as global growth decelerates in 2008, led by a sharp slowdown in the US, says the International Monetary Fund (IMF). The IMF expects world growth to slow to 3.7 per cent in 2008 - 0.5 percentage point lower than what was forecast in the January 2008, says its latest Economic Outlook update released here on Wednesday. The April 2008 report cites the turbulent financial market amid a housing correction and a financial crisis that has quickly spread from the US sub-prime sector to core parts of the financial system, as the biggest downside risk to the global economy. Further, world growth would achieve little pickup in 2009, and there is a 25 per cent chance that the global economy will record three percent or less growth in 2008 and 2009, equivalent to a global recession. By contrast, the rapidly globalising emerging economies have so far been less affected by financial market turbulence and have continued to grow at a rapid pace, led by India and China, although economic activity is beginning to moderate in some countries. Nevertheless, growth across all emerging and developing regions will remain above trend, says the IMF report released ahead of the World Bank-IMF spring meetings over the weekend. China and India - which grew at 11.4 per cent and 9.2 per cent respectively in 2007 - are projected to grow at 9.3 per cent and 7.9 per cent respectively in 2008.

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Pointing to the balance of risks around the IMF's projections as lying "somewhat to the downside", IMF Chief Economist Simon Johnson said at a press conference Wednesday that "the principal downside risk comes from the possibility that financial strains could deepen". And even though the "sentiment in financial markets has improved in recent weeks since the Federal Reserve's (US central bank) strong actions with regard to investment banks", he noted that "strains in markets can quickly become reinforcing and a negative spiral remains a possibility," he said. For emerging and developing economies, direct effects from the US downturn and financial strains have, to date, been much less pronounced than in past episodes, Johnson said. Stronger policy frameworks, rising intraregional trade, productivity gains, and high commodity prices have contributed to their resilience. Growth is expected to slow to 6.75 per cent in 2008, down from almost eight percent in 2007. Nevertheless, growth would remain above trend in all major regions, he said. Although activity is slowing, inflation pressures have picked up around the globe mainly reflecting sharp increases in food and energy prices. Commodity markets have remained buoyant overall and, in many cases, have touched new highs, reflecting the still strong demand from emerging economies, such as India and China, sluggish supply responses, and the increasing attractiveness of commodities as an asset class, he noted. The resulting inflation pressures are particularly intense for emerging economies, where food and energy account for a large share of their consumption baskets and where growth has held up reasonably well. In India, growth in consumer prices, which has been rising alarmingly in the recent past, is expected to moderate to 5.2 per cent in 2008 and four per cent in 2009 as against 6.4 per cent in 2007. Other emerging and developing economies, including in Africa and Latin America, are also expected to maintain robust growth rates, the IMF report said noting they have been more resilient during the current market turmoil than in previous episodes.

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Three broad factors are providing the momentum for growth in emerging and developing economies: first, strong productivity gains from the continuing global integration of these economies; second, better terms of trade for commodity producers as prices of commodities such as oil and other raw materials continue to soar; and third, stronger institutions and macroeconomic policy frameworks. Johnson flagged continuing inflation worries, particularly in the wake of increasing commodity prices, large current account surpluses, and the "uneven pattern of exchange rate movement around the world" as the other downside risks. On currency movements, he said the IMF's medium-term view was that "the dollar-in real effective terms-is now closer to its equilibrium value than at any time since the late 1990s, although it still remains somewhat on the strong side." The euro is on the strong side, the yen remains undervalued, and the Chinese renminbi "remains considerably or substantially undervalued," he added. Blaming the twin forces of deteriorating financial market conditions and the continuing correction in the US housing market, the IMF predicts that the US will slip into a "mild recession" in 2008, from which it will recover only modestly in 2009. The ongoing commodity price boom continued in early 2008, notwithstanding the market turmoil and slowing growth in major advanced economies. The IMF commodity price index rose by 44 per cent from February 2007 to February 2008. Prices of many commodities-including crude oil, tin, nickel, soybeans, corn, and wheat-reached record highs in current US dollar terms. Strong demand from emerging economies has accounted for much of the increase in commodity consumption in recent years and has been the driving force in the price run-up. Biofuel-related demand has added to the demand for major food crops, especially corn, the IMF report said.

Inflation hits 41-month high of 7.41 % ET-11 Apr, 2008 •

India's annual rate of inflation rose further to hit a 41-month high of 7.41 per cent for the week ended March 29, from 7 per cent for the week before, on account of higher food and commodities prices. The inflation rate, based on the official wholesale price index, is the highest since Nov 8, 2004, as per data released Friday by the commerce and industry ministry. Since the data pertained to March 29, it did not reflect the measures taken by the government since March 31 when it cut import duties on a wide range of items including edible oils, while imposing a ban on exports of nonbasmati rice. The alarming data comes a day after Prime Minister Manmohan Singh said the steep increase in prices of food and essential items was making inflation management a difficult task that could hurt the country's macroeconomic stability. "Sharply rising food prices can slow down poverty alleviation, impede economic growth and retard employment generation," the prime minister said at a global conference on agro industries Thursday. "A steep rise in food prices will make inflation control more difficult and can hurt the cause of macroeconomic stability. The constituency for economic reform, so necessary to stimulate economic growth, would also diminish," he warned. The Reserve Bank of India (RBI) has already said that it will take monetary and fiscal steps to contain inflation which it had hoped to contain below the five percent mark for the fiscal year ended March 31. Analysts now expect the central bank to take some immediate steps to check inflationary pressures, like hiking the benchmark interest rate to control the supply of money in the financial system. The International Monetary Fund (IMF) has forecast India's inflation to moderate to 5.2 per cent in the current calendar year and four per cent in 2009, as against 6.4 per cent in 2007.