Sunday, September 24

Could a new spike in retail inflation cause disruption in the market, given that inflation may have reached 6.50% in July?

The Mint survey of 19 economists has predicted that India’s retail inflation in July could hit a six-month high of 6.50%, up from 4.81 per cent in June.

Mint’s report stated that inflation has remained below 6% since March, with a 25-month low of 4.3% in May and then resurfacing in June.

In light of the uncertainty surrounding food prices, the RBI has revised its inflation forecast for the fiscal year 2023-24 from 5.1 per cent to 5.4% and projected inflation to average 6.2% in July-September. The repo rate was also left unchanged by the central bank during their meeting on August 10th.

Retail inflation in July could hit a six-month high of 6.5%, as per estimates.

Might a jump in July CPI cause market instability?

There appears to be a consolidation in the market and some sort of sharp rise in retail inflation print could add pressure to sentiment, but it might not last long given the strength of the short-term market fundamentals.

The founder and head of research at Equinomics Research, G. Chokkalingam, thinks that if CPI inflation is significantly higher than 6 per cent, it may have a short-term impact on the equity markets, as he believes inflation will settle in the next two months due to resumption of monsoon conditions.

According to Chokkalingam, the increase in CPI would be temporary as there is a slight decrease in precipitation and spatial distribution across 36 subdivisions. Furthermore, water storage in major reservoirs and areas sown under the Kharif crop has improved, and CIP will moderate within two months.

Chokkalingam maintains that the movement of global crude oil prices above $100 would result in a further rise in retail inflation.

Aamar Deo Singh, Head Advisory of Angel One, stated that the markets would be alert if India’s retail inflation rises to 6.50% due to increased vegetable prices, as predicted in July, and it will surpass the RBI’State Level limit of 6 per cent.

The RBI’s monetary policy may be reconsidered due to persistent inflation, according to Singh.

The RBI kept interest rates in expectation of a slow inflation rate, but if inflation continues to rise for another few months, the rate could be put on hold again, according to Singh.

According to Singh, markets should be ok with no rate hike as interest rates are the main driver but any sign of rise will take the markets into all sorts of dangerous territory. As it stands, we have closed in the red for three weeks and this coming week 19,200 is going to be very important support for Nifty,” he said.

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The opinions and recommendations conveyed here are those of individual analysts and broking companies, not Mint. We suggest investors verify with certified experts before making any investment decisions.

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