Inflation – Is it really high

Inflation is the talk of the town. Every one has an opinion on why Inflation is high and how it can be controlled / alleviated. In fact, one key reason for UPA-II to probably lose elections in 2014 will be the high inflation.

But is it really high as in historical high? Not so as the chart below shall suggest,

The long term average of CPI in India since 1958 is 7.65 with a Standard Deviation of 5.59. Hence a 1 Standard Deviation would be 13.24 and we are a bit lower than that as of now.

 While inflation hurts everyone, the impact is most evident in food (which has been the driver in recent times) since compared to other items, this is directly visible (in terms of spending more for the day to day food) as well as the fact that this is one area where we cannot do much of savings by postponing the decision to buy.

As the chart suggests, this is not the first time we are seeing high inflation and shall not be the last either. At the risk of being proved wrong, I would say that the probability of a decline in Inflation is higher than at any point in the recent past (of course, with elections coming in 2014, we may see it getting prolonged a bit till the next government is in place).