It’s too early to declare victory over inflation: Mythili Bhusnurmath

Mythili Bhusnurmath, Consulting Editor, ET NOW, shares her macroeconomic outlook. Excerpts:

ET Now: What people get today will be for the month of September. The real story is the month of October. That is the time when commodities have taken a gut-wrenching fall. Your take?

Mythili Bhusnurmath: Absolutely, you will see a decline both in October as well as possibly in November. After November, the advantages of the base effect will cease. Then you will see the prices going up again.

Actually, the real problem with the Indian data is that we do not get a sufficiently long trend. One month it is up, the next month it is down. Whether it is IIP, whether it is prices, it takes a long time to really declare victory. Mind you, we are talking about CPI which is at over 7% and we are thinking it is trending down. Actually, the data shows that the maximum tolerance for CPI is not more than 4% to 5%, maximum 6%. So anything over 6% would be treated as high inflation.

Inflationary expectations are actually far more damaging. They will take some time to come down because they tend to be sticky. My sense is that even if we do get CPI at 7.1%, it will be too early to declare victory. Mind you, even though Nomura has given a very positive spin on the entire thing about oil prices and commodity prices, that is a very optimistic kind of view. Everything is so uncertain. One does not know when trouble again starts in the Middle East or Ukraine, or when some other problems arise.

So, I would say it is good if the CPI is coming down, it is good that the WPI is coming down. But to say that we have got victory over inflation — it is a little early in the day for that.