The unmentionable inflation.

There are so many different measures of inflation that it is very confusing and almost incomprehensible for us amateurs to understand. There is the Wholesale Price Index or WPI which measures goods bought in bulk by corporates,  mainly commodities. The US measures Producer Price Index or PPI which is an average of goods and some services offered by companies. Then there is the Consumer Price Index or CPI, also referred to as retail inflation, which measures what customers pay at retail shops. Then there is Core Inflation which is CPI excluding volatile items such as food and energy and Headline Inflation which apparently is the raw inflation data in the CPI, whatever that means. In India the Reserve Bank looks at the WPI to set interest rates. This has been declining in recent months because of falling industrial output which is due to falling consumer demand which, in turn, is due to very high CPI made worse by extortionate taxes. Index of Industrial Production or IIP grew by a paltry 1% in the whole of 2012-13. It grew by 2.2% in April and 3.4% in March.  The WPI fell to 4.89% in April mirroring the fall in industrial production. For us, the people, all this is irrelevant. What matters to us is what we pay at the shops and that is what determines how much money we have left for travel, entertainment and eating out, after having paid for essentials. The CPI was 9.31% in May down from 9.39% in April, which is killing the middle class. However, completely ignoring interests of the people there is a constant cry for lowering interest rates by politicians and business fellows. They say that reducing interest rates will lower borrowing costs and allow them to increase production thus increasing employment and growth. That begs the question - why would business fellows increase capacity when demand is low? But there is another inflation in India which no one mentions. It is mentioned as a news item from time to time but there seems to be an understanding between politicians, journalists and business fellows to keep it in the dark by never focusing on it. And that is the property price inflation which is over 20%. Property prices have increased by 1000% since 2002. In the last 3 years prices in Mumbai increased by 60%, on top of a very high base. Almost every company has moved into construction regardless of their core business. They acquired land at very high prices and are now stuck with unsold stock since people cannot afford stratospheric prices. Unless property prices decline by 80% the rupee will fall, further fueling inflation. But that is where the scoundrels have their black money. Hence the anguished cries for reducing interest rates hoping to entice gullible investors and recoup their money. Great.