Inflation at 12.14%; experts see it flattening ahead

So, how do experts view the current inflation number?

Arvind Sampath of Standard Chartered Bank said the market will mostly take it as a flat number. The market was pricing it around 12.10% and it has come in at 12.14%, there is a strong seasonality to the primary articles, fruit and vegetable number, he added. He feels that it is a mild disappointment but is not too big a number.

Ashima Goyal, Professor, IGIDR feels that this is a very marginal rise. The last two-month inflation has been flat and major rise was before that, she said. She believes that inflation is flattening out. She is of the view that the jump from the initial price has to work through. She advices not to read too much into the marginal rise and that on the whole inflation is flat.

How will the markets react?

Arvind Sampath said it is difficult to say whether the markets will be tempted to give the inflation number a pass, looking at the turbulent news coming out of the world market. He feels need to look at how the macros shape up and then a fresh call next year. He feels markets would stay neutral on the inflation numbers. According to him, markets are going to be in a consolidation phase.

"Yields on the 10-year bond moved pretty sharply in the last two days from 8.4% to 8.05% and back, to close at 8.4%. I see it as a consolidation phase for the next 15-20 days."

What will be RBI's stance?

Ashima Goyal said manufacturing inflation is flattening out because food and fuel prices, at least the non administered part, is volatile in the sense that they can fall. She believes that this flattening is a sign that if commodity prices fall, aggregate inflation could fall. Given that and the international climate, it is clear that Monetary Policy now should hold on rate rises, she added.

According to her, there should be no more rate hikes. She said, "RBI is responding and is increasing liquidity. We have to now think of the slowdown and how this can be reversed. They should worry about stimulating markets and demand rather than worrying about raising interest rates to fight inflation." She feels RBI should be careful about rupee depreciation. If they don't raise interest rates to defend against a fall in the rupee, that would be counter productive, she added.

She is of the view that since the inflation rate is high at present, real interest rates are not that high. RBI cannot start cutting immediately but will not raise rates as well, she added. She said RBI is fighting inflation and has been raising interest rates but central banks worldwide are beginning to talk about encouraging demand. Therefore, she feels that they can move towards a slightly greater concern on that aspect also.

On inflation going forward:

Ashima Goyal doesn't see inflation climbing up steeply again. She said, "It will flatten and when the base effect wears out, it would come down. If depreciation is reversed and there is sufficient fall in commodity, fruit, vegetable, and food articles then we could see it coming down to 10%."