New Delhi, Nov. 15: Inflation, which measures the pace of rise in prices, dipped marginally to 8.58 per cent in October. While the inflation has come down to a nine-month low figure, economists don’t see it dipping soon to the Reserve bank of India’s comfort level of 5.5 per cent.
Inflation has been over 5 per cent since December 2009. Crisil, chief economist, Mr D.K. Joshi said that inflation has been high due to costlier food prices as there is a demand-supply gap emerging in some commodities. “There is a supply side issue in commodities like wheat and oil due to the change in the diet pattern,” said Mr Joshi. He said that as the income in the rural areas have been increasing they have started consuming more protein rich food. “The firming up of the commodity prices is the additional risk in the future to the inflation especially the oil prices,” said Mr Joshi.
“Going forward, we expect inflation to moderate to 6.5-7 per cent by March on a high base effect,” said Citi India
Finance minister Mr Pranab Mukherjee said that while inflation has come down due to some of the monetary steps taken by the RBI, inflationary pressures are coming from the supply side as well.
Economists expect the RBI to still hike the interest rates. “We continue to forecast that the RBI will hike policy rates by another 50-75 base points by June-end 2011, due to the high current account and fiscal deficits, the loose financial conditions, rising asset prices, and inflation above the RBI’s target range,” said Goldman Sachs.
In October, inflation was marginally down due to decrease in the prices of the primary articles.
Learn with DC
QHow can the savings be protected from inflation?
While rising prices always pinch on a daily basis, the real damage they do is over the long term. In the long run, inflation also brings down the value of savings. To avoid this, you also need to inflation proof your savings and investments.
As a rule, financial planners suggest that you must not rely on savings accounts and fixed deposits to park all your assets. This is because the interest rates on these is lower than the inflation rate. This means that in real terms, your money loses its value – its ability to purchase goods - even while it is earning a nominal return.Inflation means prices of goods or assets are going up. In such a scenario, your investments also ought to be in real assets. This could typically be stocks (through mutual funds or blue chip shares), commodities such as gold and even heavy duty assets such as real estate. Investors seeking fixed income can also go for corporate fixed deposits or post office deposits which offer a better interest rate.