M3 indicators shows inflation here to stay

RBI has come out with its annual Handbook of Statistics on the Indian Economy 2011-12.As usual, it is a treasure chest of useful information and stats.

One of the most interesting stat is the components of money stock.The stats indicate that the M3 indicator increased by the following rates:

2008-09:18.75%

2009-10: 16.84%

2010-11:16.09%

2011-12:13.14%

There is considerable research which indicates that M3 indicator is a good predictor of medium term inflation.As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon”.

So whether RBI cuts rates tomorrow or not, be prepared for elevated levels of inflation.