Premonitions of impending doom?

It appears that the storm that rocked the Indian economy for the last few months is past its crescendo. Looking back the force of the gust seems incredible.Massive current account deficits, bone-chilling falls in the stock market, an even rapidly receding rupee, gargantuan crude prices, and of course , outrageous rates of inflation : the turbulence even threatened to topple the hapless government in charge. Well you could argue that the government was facing a tornado which, quite possibly, was its own creation. But then, the chief harbinger of the crisis, stratospheric crude oil prices , is pretty much a global trend and the present order of globalisation allows minimal corrective action.Leading economists have been crying themselves hoarse for much needed changes in the present setup , but then that would be my material for a later post. Right now lets check out if the storm has really subsided, or is a more vicious wave lurking round the corner.

One of the features of the recent economic slide had been a steadily climbing rate of inflation . Supply -demand gap, global trends of high food grain costs, rising crude; whatever be the reason for the surge, it did catch consumer attention (as it should) big time. Last weeks figures might have shown a marginal dip :from 11.92% to 11.8%. But there are reasons galore for the hiatus to be brief. Some of them are traced here:

1) Inflation figures are calculated relative to last year's figures. Things had been quite calm last year with the inflation figure being a agreeable and manageable 4%. This will artificially tarnish the figures this year, and cause somewhat unnecessary panic to set in .

2)Now coming on to the factors that are real and sure to impact the figures in a big way. India has witnessed one of the worst seasons of monsoon. Already there are worries of huge shortage of crop in pulses, amongst other foodgrains , and this is sure to impact the numbers adversely in the coming months.

3) The moratorium on the steel prices is making the steel companies literally bleed crores of rupees as daily losses. With the national prices being 20% shorn of the international prices , the competitiveness of the national steel majors has come under threat. The artificial price cap imposed by the government ceases next month . This would lead to an inevitable , and necessary, rise in the steel prices. The effect this would have on the inflation numbers is needless to say.

4) The critical reason for inflation spurt has been grossly overpriced crude. An interesting explanation for this upholds increased futures trading of crude as the chief reason for the high prices . General downtrend in the US housing and banking sector is being held responsible for increased investments in the oil futures. This artificially increases the crude prices . Recent fall in the crude prices from $140 per gallon to $130 due to decreased spending in the oil futures and revitalised interest in the banking sector, could be an evidence to this theory.
But some of the happenings of the past week impart a sinister touch to this theory. The fall of Freddie and Fannie, the largest mortgagers in the US , could take the troubled sector back to square one, and turn the investors back to buying oil futures . This raises the chances of further rise in the crude prices. And up go the inflation figures!

The tide might have subsided for the moment , but there are enough reasons to suggest that it might hit back with vengeance. I sincerely hope the ever-vigilant custodians at the RBI take premeditated actions and effectively wield its weapons to thwart the rising hood of inflation.
A 12%inflation by september,anyone?