The World Economy... - 7/7/2010

Rising Price Pressure In Developing Economies, While Developed Countries Are Facing With Rising Risk Of Deflation

Inflation from China to India and Indonesia as well as some other emerging economies are heading up in recent months. Consumer prices in India, in particular, are rising at least twice as fast compared with inflation rates in Brazil, Russia and China, the other three nations that make up the BRIC economies. As it stands, India’s inflation rebounded to 10.2% yoy in May, after easing to +9.6% in April and from a high of +11.0% in March. Despite off its high, the former Governor of the Reserve Bank of India is concerned that India may need a “contingency plan” by September to control inflation, as prices are showing few signs of easing. Inflation in India started picking up after a drought last year that created shortages in rice, wheat and sugar. It accelerated as consumer demand for manufactured goods and services strengthened. The situation will likely be made worse by an increase in gasoline and diesel prices in June by the government in a move to cut its US$5.5bn fuel subsidy bill. Rising inflationary pressure has prompted the Reserve Bank of India to increase
its key policy rate for the third time on 2 July, an unscheduled 25 basis points increase. Indeed, the central bank could be under pressure to raise interest rates again in the monetary policy meeting on 27 July.

The World Economy... - 7/7/2010