Friday, December 3, 2010
Someone is bound to ask me again, so let me summarize my take on the November inflation.
With a monthly figure of 0.03 percent, prices were virtually constant in November over the previous month. This brings the yearly figure down to 7.3 percent. Note that my expectation of 8 percent yoy was well above market expectations, so bonds are unsurprisingly reacting positively to the news., except CPI linkers of course:)... However, today's outturn does not share the gist of my inflation outlook that I had shared yesterday:
Inflation is bound to fall for the next couple of months because of base effects as well. In fact, today's figure makes me confident that we will see 5.5 percent yoy by February. By then, everyone will be claiming that inflation is well under control. But that's when base effects will end and sticky expectations, as well as spillovers of higher food inflation figures of earlier will start kicking in- see my previous post on food inflation for my analysis of spillover effects from food inflation to core inflation and expectations- we already got most of the spillover into expectations, but the spillover from food inflation (those damned tomatoes) are still to come...