Did you know that the basket of consumer items bought for Rs100 in December 2009 was priced at Rs115.46 twelve months later. Its a tanking feeling, isn it? And its worse, when you find that a part of this increase was due the governments inability to stop itself from note printing in the second half of the calendar year ending December 2010.
In a much-puzzling announcement this week, the FBS first said the consumer prices rose 15.68 percent in December. Soon after that, it realised it had to reverse the roll-back of the fuel price hike decision, after incorporating which, the December CPI came down to 15.46 percent.
But how long will the government keep subsidising fuel? Eventually, it will have to jack up prices in accordance with global oil prices - that are seen soaring to $100/barrel in the coming months - or otherwise risk even more inflation fuelled by government borrowing needed to fill the gap created by the fuel subsidy.
Still, as far as December is concerned, CPI fell 0.51 percent month-on-month as prices of perishable food items dropped by 12.94 percent. Though the volatile nature of food prices restricts exact food inflation forecasts, the 1.44 percent increase in the SPI index - that shows weekly changes in prices of key food items - between December 15 and January 6, suggests that food inflation will be on the higher side in the running month.
However, with house rent inflation likely staying on the downside - 6 to 7 percent year-on-year in the coming months - coupled with the high-base effect beginning January, the CPI inflation for the ongoing month might come to around 14-14.5 percent year-on-year - a sharp slide from 15.46 percent marked last month.
At the same time, the expected bumper crops in the Rabi season and better supply conditions will likely come to the rescue of the food index in the months following January.
Yet, don be surprised if excessive government borrowing from the central bank stokes inflation to the point that the benefit of the high-base effect gets diluted. FBS data show that non-food & non-energy core inflation remained sticky at 9.5 percent last month, whereas trimmed core inflation edged slightly up to 13.6 percent from 13.4 in November and 12.8 in the month before.
Amid soaring food and fuel prices in global markets, failure to curtail government borrowing can potentially make inflation a recurring theme of this year. And that could keep the central bank on a tightening spree when it meets later this month.
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