"European shares retreated from near one-year highs on Wednesday as concerns about a rise in inflation tempered optimism around a vaccine-led global economic recovery," reported Reuters. "British inflation edged up in January as consumers hunkered down with new sofas and duvets and spent more on food, video games and other home entertainment as they went into a third national coronavirus lockdown," said Reuters. "Annual consumer price rose to a three-month high 0.7% last month, and many economists expect it to overshoot the Bank of England's 2% target later this year as temporary tax cuts and a cap on household fuel bills expire." "Yields on 10- and 30-year British government bonds extended their recent climbs and briefly hit their highest since March 2020 after Wednesday' data." In India, the government set a consumer price (CPI) inflation target at 4% (+/- 2%) for the Reserve Bank (RBI) in 2016, giving a wide range of 2-6%. CPI inflation has stayed much higher than 4% in the last one year and came down to 4.06% only last month. Wholesale price inflation rose to 2.03% in January from 1.22% in December, led by manufactured items, official data released on Monday showed." The RBI has been reducing interest rate since 2019, to its lowest level in 20 years, despite inflation higher than its mandate. RBI Governor Shaktikanta Das has been working hard to keep yields on government bonds as low as possible, wrote Aparna Iyer. Just a week, after the Budget was presented on 1 February, "Versus an asking amount of Rs 31,000 crore (Rs 310 billion), the RBI got only Rs 190 crore (Rs 1.9 billion) of bids it found acceptable," wrote Latha Venkatesh. "Most traders believe 6 percent was the line in the sand for the 10-year bond, before the budget. Now that the budget has imposed a much larger than expected load on the market, RBI will have to accept a higher yield." There are other fears as well. "As the economy is gradually recovering from the recessionary phase, the fear of rising inflation is getting stronger," wrote Deepthi Mary Mathew. Though CPI was only 4.06%, "core inflation (i.e. inflation excluding food and fuel) grew 5.7% in January". Which is extraordinary because, though vegetable prices fell in January, petrol and diesel prices have been rising relentlessly. "By way of an example, just before Modi came to power, petrol was selling at a bit above Rs 75 while crude prices were as high as $110 a barrel; but now local prices are in the high 80s and 90s despite crude prices hovering just above $60," reported the Economic Times. "It is worth noting that basic price of petrol is just about Rs 31.82 a liter but more than 65 percent load of taxes has put its retail price which the customer gets at is Rs 89.54 a liter in Delhi," wrote Zee News. The goods and services (GST) collection came in at a record Rs 1.2 trillion in January, and since GST is levied as a percentage of prices, cost of goods and services must have gone up much higher than reflected in the official inflation figures. "It cannot be that internally the rupee is losing purchasing power due to domestic inflation, but externally it is gaining power, by becoming stronger as compared to the American dollar, the euro or the British pound," wrote Ajit Ranade. A strong rupee makes exports more expensive. The strong rupee is being used to keep inflation under control. Inflation is richer countries will cause them to tighten monetary policy. That will cause an outflow of foreign currencies from India and a fall in the rupee. That will be out of our hands, as in 2013. Will Modi accept responsibility?
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