India's Inflation is a lot like Julia Robert's role in "Runaway Bride"(1999) ...and is catching global attention for refusing to be tied down despite several measures over the last 9 months or so. I happened to read Mike's latest post on Indian Inflation...it talks about how India's inflation has been driven up by food and fuel prices, how faster growth in Bank credit (the amount banks give away as loans to corporates and individuals) than in Bank deposits (the amount banks receive as deposits) has led to liquidity crunch, and how India (along with China) is going to "overheat and crash or their economic growth is going to slow dramatically, quite possibly both."
Before we move ahead on this, please note that Mike Shedlock (popularly known as Mish) is one of the world's best and arguably the most read blogger on global economy. So much so that he was even covered in NY Times recently as one of the ideas / trends for 2010. Check that link out, it talks about how post 2007 DIY (Do-It-Yourself) Macroeconomics - ordinary citizens as econo-bloggers have flourished on the internet, many with their own hypothesis and conclusions on how global data should be read and understood !
Having said that, I think while the analysis is correct, the conclusion being drawn here that India and China are overheating and will crash, is flawed...(and no, I'm not taking it personally !) Let's first start by understanding where we're coming from... Here's a chart of interest rates movements over the last couple of years...
