Sky rocketing CPI inflation is a worry for most of us. And WPI? Well its losing any meaning. Of course, the falling WPI has a lot to do with base effect as the Index peaked in August last. Not surprisingly it is on the lower side. Fact is, within the WPI, the food articles index jumped 10%.
From September onwards, the trend is sure to be reversed. And, therefter, as the low base effect kicks in, it will start moving up. Not surprisingly, RBI is expecting the inflation rate to touch 5% by 31st March 2010. But even that may be belied as weak monsoon threatens to derail the economy. Food inflation is a very real threat now. As inflation starts to inch up, it is only a matter of time before interest rates start moving north.
Not supsrisingly the inflationary expectation is playing in the mind of the corporates as it would jack up interest rates. As a result, for the fortnight ended July 31, 2009 bank credit went up by a whopping Rs. 29,471 crores as the corporates have started taking the loans that were sanctioned earlier. All this time they were avoiding taking up the loan as they expected the interest rates to fall. But now, with every chance of the falling trend being reversed, the loans are being taken up.
Clearly, inflation is going to be worry sooner rather than later.