By Ruma Dubey

The TV channels went ballistic over the expected inflation numbers. And after it was out, the analysts went on a seemingly never-ending mode, juxtaposing on what RBI will now do on 18th June.  The market, nonchalant as always, saw the figure and moved on. Within a matter of few minutes, for the market, inflation data was over and it was looking ahead at Greek elections and the RBI meet.

Inflation is an indicative figure for what we pay to acquire goods. There is no denying the fact that we are paying much more than what we used but definitely, compared to last year this time, it has most certainly eased.

While we are beating ourselves up with high prices, there is a report about falling commodity prices and it read like something from a completely different planet.  Here is a sample – Global oil prices, over the last month have come down around 12%; but it has been not even a month since India hiked its petrol prices.  There is more – globally, corn, copper, lead, cocoa and coffee have dropped by more than 5% while price of oats, cotton, rubber, coffee, aluminum, silver, zinc and nickel are down 20% on a YoY. In USA, Oil Price Information Service has put out a report stating that on an average, a household in USA consumes 1,200 gallons of gasoline a year, thus every time price comes down by even a dime, it translates into a $120 annual savings. For us here in India, savings on account of falling price? Do such things really happen? One cannot help but show utter disbelief. But the only thing common is that like in India, globally too, food prices have been steadily up.

Yes, in India too, if globally prices are down for some commodities, it should ideally reflect into lower prices. But the sad part is that no one is passing on these lower prices to the consumers. Aviation fuel prices in India have come down twice over the last one month yet there was not a single airline company which announced a rate cut though the same companies are quick on the take to hike rates when its fuel cost rises. So why doesn’t the benefit get passed on to the consumer? Simply because raw material prices fluctuate much faster than the prices which consumers pay for the goods and thus producers prefer to wait and watch, to see if the lower prices are sustainable. Other point being that manufacturers have purchased goods at higher prices and they are sitting on a stock pile of inventory; so unless they sell off that inventory they might not be able to take advantage of the current lower prices and thus do not lower their selling prices.

Most manufacturers confer that this current fall in select commodity prices has a lot of uncertainty built in. The current fall is more about the slump in Europe as everyone is waiting till Greece elections get over and whether it pulls out of the European Union. Demand has slumped in Italy and Spain. Thus the fall in prices is more on account of a built in uncertainty and many feel that the selloff has been so sharp, like an oversold market, that it is bound to spike up the moment there is even an inkling of some resolution to the Euro crisis. Infact Goldman Sachs has put out a report stating that oil and some other commodities were poised for a rebound very soon.

Thus globally some commodity prices might be on the decline but chances of any of that getting passed on to the consumers are dim. The undercurrent shows that prices will surge the moment things settle in Europe. Yes, inflation continues to remain a sticky issue and until there is some clarity, RBI might in all probability not cut rates but maybe tinker with the CRR, merely a tokenism of boosting sentiments. Yet all pointers, on prudence alone, is that there will be no change. 

We live in extremely uncertain times and that’s the only certainty!