Monday, August 16, 2010

Inflation easing?

Our economics leaders keep saying inflation will fade after the monsoons. As if our price levels depend on agriculture! Only 15% of our current index is accounted for by food articles, and this will probably get revised downwards in August. Another 11.5% is accounted for food products (processed foods) but agri materials don't account for the majority of input costs here - thinking packing materials, fuel and electricity, freight, and distribution margins. Manufacturing margins have got squeezed, and firms are llooking to up prices wherever they can, so we could see these prices go up.

As to prices elsewhere in the manufacturing sector, overall numbers for Indian companies show the same tendency to margins being squeezed, so there is an upward bias in prices.

One interesting little sidelight I found when digging into data - official data  for vanaspati prices, which are the single largest sub-component of edible oils, show the level to have been stagnant for much of this year. This doesn't figure - palm oil is the single largest ingredient, and prices are up from Rs. 363 per 10 kg in April to Rs. 422 yesterday.

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