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Economy in Brief

Continuing Inflation In India
by Louise Curley July 26, 2010

India is experiencing high inflation in contrast to China and South Korea, as can be seen in the first chart that shows the year over year percentage changes in the consumer price indexes of the three countries. The financial crisis beginning in 2008 and subsequent recession that led to lower inflation in China and South Korea had the opposite effect in India.  Although erratic, the trend in inflation in India has been steadily upward.  In May, the latest data available for India, overall inflation was 13.68%, compared to 3.1% in China and 2.66% in South Korea.   

The Bank of India has already raised its policy rate in three successive increases of 25 basis points from 4.75% to 5.5% on July 2, 2010.  With strikes protesting the rise in prices and demands for higher wages, a 50 basis point increase to 6.0% is generally expected on July 27, 2010.  The policy rate in Korea was held at 2.00% from February, 2009 until this month when it was raised to 2.25%.  The rate in China was lowered to 5.31% in December, 2009 and has remained there.  The policy rates for the three countries are shown in the second chart.

Consumer Price Index (Y/Y% Change) Jun 10 May 10 Apr 10  Mar 10 Feb 10  Jan 10 2009 2008 2007
India n.a. 13.68 13.74 14.31 14.83 16.11 10.85 8.35 6.37
China 2.9 3.1 2.8 2.4 2.7 1.8 -0.73 5.98 4.78
South Korea 2.58 2.66 2.57 2.31 2.69 3.07 2.76 4.67 2.53
Policy Rate Current  
India 5.50%  
China 5.31%  
South Korea 2.25%  
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