Today brings an example which combines two of my themes and also gives us an opportunity to delve deeper into the state of play in the world’s second most populous country. The first theme is the continual establishment effort to produce a situation which avoids reality as much as possible.
India’s government is considering recommending a looser inflation target for the central bank, allowing it to focus more on economic growth despite price pressures, according to people familiar with the matter. ( Bloomberg)
Time and time again I find myself alone in pointing out that such a move will lead to claimed economic growth whilst the ordinary worker and consumer suddenly cannot afford things.Let us now move to the specifics.
A consumer-price inflation band tracked by the Reserve Bank of India may be relaxed further from the current 2%-6% range, said the people, who asked not to be identified citing rules. The government still needs to hold consultations with the central bank before finalizing a new framework sometime next year. ( Bloomberg)
This tells us that India already has a very wide band for inflation control as there is a world of difference between inflation at 2% per annum and 6%. Also that the upper band at 6% if very high for these times. After all we are regularly assured that there is no inflation as many of the world’s main central banks look to drive it higher towards a 2% target. This was highlighted by the US Federal Reserve earlier this year.
With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.
It moved to what we might call average inflation targeting as a way of justifying easy monetary policy. But stuck to 2% as a level and crucially for this purpose did so from below as in October PCE inflation was running at an annual rate of 1.2% having recently been in a 1% to 1.4% range.
If we return to the range issue then I would suggest this is not an area where comparisons with Argentina and Turkey are welcome.
The current mandate, set in 2016, requires the RBI to keep headline inflation at the 4% midpoint of its target range. The band — a broad range of 400 basis points within which the central bank has sanction to operate — is the widest in Asia, and only matched by Turkey and surpassed by Argentina.
A sub-plot to this sort of thing is that when a silly idea appears someone rushes to suggest something even sillier.
Economists like Bloomberg Economics’ Abhishek Gupta have argued in the past that the headline inflation measure used now is too volatile and the central bank should rather target core prices, which strips out oil and food costs. Food carries nearly 50% weight in the CPI basket.
India has a large number of poor people for whom the prices of such necessities can be as vital as life or death so ignoring them is a really bad idea. Regular readers will recall the issues with India’s staple vegetable the onion.
The price of onion has been skyrocketing for quite some time now. The kitchen staple was available for ₹20 per kilogram a few weeks back. However, people now have to pay over ₹80 per kilogram. In some cities like Delhi and Mumbai, the prices are much higher at ₹100 for a kilogram of onions.
That was from Business Insider in late October.
What is inflation in India?
I doubt many of you will be surprised to read this.
The growth rate of India’s retail inflation, which is measured by the Consumer Price Index (CPI), climbed 7.61 per cent in the month of October. ( The Indian Express)
We see that food inflation is 10.16% and if we narrow down to vegetables it is 22.51%. Some upwards pressure on food inflation may come from this.
MUMBAI (Reuters) – China has begun importing Indian rice for the first time in at least three decades due to tightening supplies from Thailand, Myanmar and Vietnam and an offer of sharply discounted prices, Indian industry officials said.
The numbers are not specific about whether there is any pork price pressure but we do now that meat and fish as a category is rising at 18.7%.
The Reserve Bank of India
Here is the Governor’s statement from the 4th of this month.
Let me begin by setting out the thinking that went into the MPC’s decision today, and its rationale. The MPC was of the view that inflation is likely to remain elevated, with some relief in the winter months from prices of perishables and bumper kharif arrivals. This constrains monetary policy at the current juncture from using the space available to act in support of growth.
That is revealing and came with something of a cry for help.
A small window is available for proactive supply management strategies to break the inflation spiral being fuelled by supply chain disruptions, excessive margins and indirect taxes. Further efforts are necessary to mitigate supply-side driven inflation pressures.
Without it they see inflation remaining as a problem.
The outlook for inflation has turned adverse relative to expectations in the last two months. While cereal prices may continue to soften with the bumper kharif harvest arrivals and vegetable prices may ease with the winter crop, other food prices are likely to persist at elevated levels. Cost-push pressures continue to impinge on core inflation, which could remain sticky.
Switching to the overall economic position this is their view.
Taking these factors into consideration, real GDP growth is projected at (-) 7.5 per cent in 2020-21: (+) 0.1 per cent in Q3:2020-21 and (+) 0.7 per cent in Q4:2020-21; and 21.9 per cent to 6.5 per cent in H1:2021-22, with risks broadly balanced.
So the Indian worker and consumer have been hit hard by a combination of a contracting economy and high inflation in what has been a mix described by Britney,
With a taste of your lips, I’m on a ride
You’re toxic, I’m slippin’ under
With a taste of a poison paradise
I’m addicted to you
Don’t you know that you’re toxic?
And I love what you do
Don’t you know that you’re toxic?
Comment
This is a bad day for the Reserve Bank of India ( RBI). It has eased policy into an inflation outbreak and now finds itself trapped. If we switch to the value of the Rupee it is noticeable by its absence in the statement with only an implicit mention here.
As a consequence, surges of capital flows have flooded into India. The Reserve Bank has been taking measures for dampening volatility and enabling orderly evolution of the exchange rate in consonance with underlying domestic fundamentals.
At 73.6 to the US Dollar or a bit less than 4% weaker than a year ago we have something not much different to other years.
I do note however that the RBI has managed to perform what is the primary role of central banks in these times. Oil the wheels of government spending.
The Reserve Bank’s role as the debt manager and the banker to the government was tested to the hilt in 2020, marked by the highest ever level of market borrowing. Our policies have resulted in the lowest weighted average cost of borrowing in 16 years and the highest weighted average maturity of the stock of public debt on record. The weighted borrowing cost for the centre stands at a new low of 5.82 per cent as on December 1 even with additional borrowings for state governments as against 6.88 per cent during the corresponding period of last year.
By today’s standards that looks high so the real rationale behind all this is likely to be the Indian government wanting to borrow even more cheaply.
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It is not enough that tptb have wealth beyond avarice that they could not spend in a dozen lifetimes.
Their insatiable hunger for power means that they must have it all, & we none.
Hi therrawbuzzin
In so many places we see changes of one form or another around inflation measurement and targeting. In the UK they want to neuter the RPI so that they can hide how woeful the CPIH measure is. I covered the US in the post and the ECB has its inflation review, Japan has not bothered because they seemingly can do as much (Q)QE as they like but inflation remains around 0%.
I wonder how many others will follow India?
One of the real effects of governmental reactions to the coronavirus is the disruption of supply/demand balance of food and the supply chains. In western societies the closing of restaurants/ cafes has reduced demand so the agricultural and farming sector has reigned back on production. However people are increasing demand in grocery shops so prices there have shot up. We remarked about this in France, and I have read and have personal knowledge of even bigger price effects in the US with its larger ‘eat out’ sector. Prices of rotisary chickens in US supermarkets used to sell at $5.99 are now at $14.99 for instance.
I cannot relate this directly to food inflation in India, but I would imagine supply chains have been badly effected and this will form part of the inflation story.
In the UK this is just about to be amplified on 1 Jan at ports around the country.
Electronics and electrical items are often highlighted by the MSM as proof there is little or no inflation, but I have seen huge price increases in small electronic items I have bought on Aliexpress – 30,40, 50% increases in the last few years, even the cost of postage – which used to be free – is now in many cases the same price as the actual item!
Looking to upgrade my PC I was looking at an AMD Ryzen 3600 cpu, earlier this year it was going for around £160, since it is being superseded by a new model I was expecting it to be discounted to clear the remaining stock, TODAY IT IS £210! if you can find anywhere with it in stock, with many sites showing out of stock, this is also the case for numerous other items, only a few retailers actually have any stock and when they do the price is usually a lot higher than before.
No doubt items like this will be removed from the basket used to fiddle the inflation numbers in due course.
Why would closures of restaurants & cafes lower, rather than just redirect, food demand?
Everyone has to eat.
We all on here complain about how our masters are disrupting our lives and destroying our wealth through inflation, but when you think of the life of millions of ordinary Indians literally trying to just earn enough to eat and the effect these increases in food prices will affect them it is just tragic.
The simple fact is they will NEVER EVER let you have your own money or control over it, since this is the secret to their power. To them we are less than human, so if we suffer or die in the process of making the changes they make to move to the next level of control it is of no concern to them.
Well said Kevin. This is the whole point of the WEF’s Great Reset and the universally utilised “Build Back Better” slogan. You will own nothing, you will have no control (democracy is dead), but apparently you will be happy. Happy slaves to the multi-billionaire elite? I doubt it.
hello shaun,
re ” Why make India poorer?”
because the BoI are bunch of useless bloody idiots who don’t know their A from their E ?
well more like its a load of twaddle because events are not happening to their preceived veiws and its obviously Reality who’s at fault .
pfft!
Forbin
PS: maybe they think a war with China might distract things a little ….
Just how much proof do you need that those in power are not idiots?
Shaun,
General assumption seems to be that increase in prices will be achieved without any consequences – India may be a case in point with major food riots in the past requiring food subsidies?
Hi Chris
There were fears that the Covid lockdown in India would cause food riots and there must still be risks. After all there are many poor in India who will know the exact price of their essentials. I remember watching the BBC4 series on the Indian Railways and it was the highlight of one father’s year that he had saved up enough money to buy a cool box so that he could sell more chocolate in the heat. People at that level cannot be fooled because they are at a subsistence level.
I have only been to India once and some time ago, but I would say:
1. Almost everyone there was a vegetarian;
2. there was a lot of poverty.
An inflation rate of 22% on vegetables will, I imagine, be a nightmare for many.
It seems to be the case that tptb use inflation statistics to suit their purposes, rather than a measure of how people are affected.
Hi James
Official inflation stats are increasingly being used to send a message rather than measure inflation. Or in this instance people will be told more inflation will be good for them. Except they will be able to buy less with their wages and in India as you say that really matters as for some it will be the difference between eating and not eating.
Bearing in mind that only a small percentage of land, at present used to rear meat/dairy, is suitable for growing vegetables, what happens when we are all “encouraged” to move to a “plant-based diet” (UN Agenda 2030/EU Farm-to-fork/ UK Green revolution)?