Mike is worried by rising inflation rates in the so-called ‘BRIC’ emerging markets: Brazil, Russia, India and China.

India is particularly hard hit. This week the central bank there signaled it would keep raising borrowing costs to mixed reviews.

Indian inflation was driven by the first increase in retail prices of gasoline and diesel this year. The International Herald Tribune reports that,”India joined China, Indonesia, Malaysia and Sri Lanka as a near doubling of oil prices pushed up costs and eroded profits of refiners.”

It’s also worth keeping in mind that BRIC nations have still relatively small economies compared to the US, Europe and Japan.

“If you look at them in real (and not in overly flattering purchasing parity power) terms,” says The Global Guru editor Nicholas Vardy,” the BRIC countries are best compared with large U.S. states in terms of economic heft. China and its population of 1.3 billion generate as much economic wealth as do the 60 million inhabitants of California and Texas. India’s economy is the size of Florida. Brazil’s is the size of New York. And Russia is smaller than Ohio and Illinois combined.”

BRICs Crumble Under Threat of Inflation

By Mike Burnick

The most popular group of fast-growing emerging market countries which includes: Brazil, Russia, India, and China are facing their biggest economic challenge this decade. Like everywhere else on the planet, inflation is picking up in the BRIC economies but it’s much worse over there and central bankers are responding by raising rates and tightening monetary policy.

While these rate hikes may be necessary to fight inflation, tight money policies are usually a very unfriendly environment for stock investors.

India is the latest BRIC under fire. Wholesale price inflation is running at 11%. That’s the highest level in 13 years and climbing. So the Reserve Bank of India responded last week by raising its benchmark lending rate to 8%. Global investors are signaling a vote of “no confidence” in the central bank move, because they sent Indian stocks plunging.

India’s currency, the rupee, is also under attack, having lost 8% of its value against the dollar this year, the worst performance for the rupee since 1993.

India is in the riskiest position among the BRICs when commodities are soaring like this. That’s because India is a net importer of most resources, including 75% of its oil.

It’s possible India’s troubles are perhaps just an early-warning sign of other troubles to come for the BRICs. Inflation in China is running close to 8% in spite of several interest rate increases last year. Inflation just topped 15% in Russia. Brazil, which suffered a painful hyper-inflationary past, recently raised interest rates after inflation crept up to 5.4%.

Seeing this threat on the horizon, stock investors have been busy pulling money out of some BRIC markets. China’s CSI 300 Index is down over 50% from its 2007 high, while India’s Sensex Index has plunged by one-third in value. Share prices in the first two markets of the BRIC alphabet, Brazil and Russia, have so far held up relatively well. This is due in no small part to their favorable trade terms and the fact that both are resource-rich exporters.

All of the BRICs are threatened by the risk of inflation. As an Indian government official put it, “Until inflation slows, this crisis is only going to widen.”

MIKE BURNICK, Senior Editor

P.S. Speaking of inflation, the big Fed rate decision comes this afternoon. We’ll find out whether Bernanke will really “get tough on inflation” as he has claimed in the last few weeks. Keep an eye on the news because there will be some very real profit opportunities once the decision hits the headlines.

Source: BRICs Crumble Under Threat of Inflation

General Motor Corp.’s (GM) sales tumbled 19%, when analysts had only expected a 12% drop. Ford Motor Co.’s (F) U.S. sales fell 14%. Toyota Motor Corp (TM) and Honda Motor Co. (HMC) saw their sales slip 10.3% and 3.2% respectively. Combined U.S. automotive sales dropped 12%.

As disappointing as the figures were, there may be more pain in store for automakers as the economy and consumer sentiment continue to deteriorate. The research firm Global Insight Inc. projects U.S. sales will bottom out in the second quarter, at a seasonally adjusted annual rate of 14.8 million vehicles sold. The rate was 15.22 million in March, down from 16.29 million a year earlier.

“We definitely have the second quarter the worst,” Rebecca Lindland, an analyst at Global Insight told the International Herald Tribune. “All of this year is going to be a challenge. Until the credit crunch eases and until consumers feel better about themselves, I just don’t see a recovery.”

GM recorded shortfalls in seven of its eight divisions. Sales of the Chevrolet Silverado pickup, the company’s best selling vehicle, fell 24% from last year. Ford’s F-Series pickups also saw a 24% drop in U.S. sales, as contracting work has dried up in response to the housing slump, and record high gas prices made passenger cars more appealing.

Chrysler LLC, a company largely dependent on its pickup, minivan, and SUV sales had a 19% deficit. Overall, passenger cars outsold light trucks for the first time since May 2002, Autodata Corp. reported.

Sales by the three Detroit-based companies are down 10.4% this year, as their share of the U.S. market dwindled to 48.4%.

“I don’t know if I can take another March like this one,” said Chrysler Vice President Steven Landry.

However, foreign car manufacturers didn’t fare any better in a tough U.S. market. Toyota, which trails only GM in market share, sold 217,730 vehicles last month, a 10.3% drop, and the company’s fourth straight monthly deficit. The Japanese automaker said its primary division lost 9.8% and its Lexus luxury brand fell 14%.

“We’re not immune to economic cycles and downturns in the automotive industry,” said Robert Carter, head of the company’s Toyota brand division. “We hope to sustain sales somewhere around the same level as last year.”

Toyota announced Tuesday that it was revising its forecast downward for total industry sales this year to a figure below 16 million units for the first time in 10 years.

GM and Ford have not revised their forecasts but will strongly consider doing so if no improvement is seen in coming months. Michael DiGiovanni cited the economic stimulus checks, which will provide many Americans with additional disposable income as “the most important reason we haven’t changed our forecast.”

Though, few analysts believe the $600 checks going out to most Americans will be enough to boost auto sales. Most believe high gas prices and a stagnant, if not shrinking, U.S. economy will continue to batter the automotive industry.

“Gas prices are a major consideration for buyers, and if they’re going up, they’re just more inclined to hang on to their older vehicle,” Chris Hopson, also an analyst with Global Insight Inc., told Bloomberg. “People just feel they don’t have as much money as they once did.”

• French financial market regulator, the Autorité des Marchés Financiers, filed a formal complaint yesterday (Tuesday) against European Aeronautic, Defense & Space, the parent company of Airbus S.A.S. and more than a dozen current and former executives in connection with an inquiry into allegations of insider trading and other market abuses, the International Herald Tribune reported. The regulator said it was initiating sanction proceedings against several individuals for violations of French insider trading rules and against the company itself for misleading investors by failing to meet market standards on the publication of financial information.

• Ford Motor Co.’s (F) U.S. sales fell 14% last month as demand for its trucks and sport utility vehicles plunged while gas prices rose and construction continued to slow. Ford was the first major automaker to report, and other automakers are expected to have faired just as poorly amid waning consumer confidence.

• Microsoft Corp. (MSFT) won’t change from its original $44.6 billion bid for Yahoo! Inc. (YHOO) The Wall Street Journal reported. Citing people close to the situation, the paper said strategists from the Redmond, Wash.-based company didn’t find anything in Yahoo’s recent presentation to investors that would justify paying more. So far Microsoft has met once with Sunnyvale, Calif.-based Yahoo and still hopes to enter more serious discussions.

• Security Capital Assurance Ltd. (SCA), the bond insurer, sued Merrill Lynch & Co. Inc. (MER) for breach of contract in an attempt to avoid losses on about $3.1 billion in collateralized debt obligations, Bloomberg News reported. “Determined to get those CDO risks off its books at all costs before the third quarter of 2007 closed, Merrill Lynch made the decision to blatantly ignore its prior commitments to” SCA, the Hamilton, Bermuda-based company said. SCA is seeking at least $28 million in damages.

• Executives from Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), ConocoPhillips (COP), BP PLC (BP) and Royal Dutch Shell PLC (RDS.A, RDS.B) appeared before a U.S. Congressional panel yesterday (Tuesday) to explain why their firms are not to blame for record-high energy prices despite booking $123 billion in profits in 2007. “The American people deserve answers and it is time for Big Oil to go on the record about these record prices,” said Rep. Ed Markey of Massachusetts, chairman of the House Select Committee on Energy Independence and Global Warming, Reuters reported.

• The Blackstone Group LP (BX) announced it had raised $10.9 billion for its Blackstone Real Estate Partners VI fund, which will invest in properties with depressed prices. “With this fund we will be able to enter new markets and expand Blackstone’s global investment activities,” said Chad Pike, senior managing director and London-based co-head of Blackstone’s real estate group, CNNMoney reported.

• Gold prices sank to a two-month low below $880 yesterday, as the rising dollar continued to prod investors to sell previous metals. Gold hit a low of $872.90, far below its all-time high of $1,030.80, hit just two weeks ago.

• Indonesia’s March inflation rate surged 8.2% from the previous year, the fastest pace in 18 months. Food and energy prices are mostly to blame, as wheat, soybeans, corn and palm oil hit records this year, Bloomberg reported.