India Food Inflation |

India Food Inflation

It’s interesting what gets picked up in the mainstream news and niche publications. Often, stories like the government selling its Citi stake spread like wildfire and drive the stock up. (Why? I’m not sure since there would be a big seller, with less of a backstop – supposedly, and more opportunity to pay executives ever higher compensation…but so it goes.)

In the meantime, this story from Bloomberg got short-changed, in my opinion.

India’s food-price inflation rate stayed above 17 percent for a sixth week and may accelerate after truckers raised freight rates citing higher fuel costs.An index measuring wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry rose 17.87 percent in the week ended Feb. 20 from a year earlier, following a 17.58 percent gain the previous week, according to a statement in New Delhi today.

For the full article, click here.

Excuse me? 17% inflation on foodstuff? What’s going on there? What can India do to stabilize the inflation rate? Should it? 17% inflation might be fine if the country is growing, with increased reserves, increased exports and increased productivity (all will help keep inflation limited, albeit high). Is this the driver for India’s gold purchases?

Let’s assume for a second that inflationary pressures are more widespread. Does this imply increased competitiveness for India’s exports (devaluation of the currency)? How does China view this given its strict currency pegs?

Since India is a bigger investment focus for us than China, we definitely intend to keep watching these signals for signs of potential stabilization. Environments with high inflation that is moving lower can be extremely good for equities (stabilization, budgeting, discounting, margin expansion, etc. – witness US equities from early 80′s to late 90′s).

Just some food for thought.

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