What do India and Japan have in common?

What do India and Japan have in common right now? Inflation. It hit a 14 year high in both the countries recently and India somehow managed to remain below the 12% mark.

Inflation spiked following June's sweeping increases in government-set retail fuel prices, by an average of 10%, to address mounting losses at state oil firms, which have been forced to sell fuel at sharply discounted rates. The RBI is likely to raise its repo rate and the cash-reserve ratio further in the near term. The RBI governor and the finance minister have both stated publicly that they are willing to tolerate slower growth in favour of keeping inflation in check.

Just about when things were starting to look a little better and it seemed like frenzy buying and commodity prices globally will take a breather, the inflation-faced grim reaper seemed to hit Japan, and hit it hard. Japan’s inflation hit a 15 year high in June as rising fuel costs continued to weigh on its sanity. Data released by the Japanese government on 28 July, 2008 showed that the core consumer price index, which in Japan's measure includes energy and processed food prices, rose 1.9% in annual terms. Energy costs surged 13.7% on the year while the cost of processed food rose 3.5%, primarily because of globally barmy commodity prices. What the world has on its mind right now is that the Bank of Japan will leave interest rates on hold at the current level of 0.5%. But looking at the current scenario, the bank might have no other choice than to raise interest rates. Domestic demand growth and exports are expected to suffer. Contrary to the belief, monetary tightening policies might actually back-fire and it would have almost no impact on the supply-led inflation. The cause of concern is the rising prices of basic staples and this could result in a big blow to consumer spending.

Data Source: Global Insight Country Intelligence