CPI – SHOCKER OF A NUMBER

The markets probably knew what to expect and it fell a bit more than usual, the colour red splashed all across Dalal Street.

CPI, which was estimated by majority of analysts at around 7.5%, came in at 7.79% v/s 6.95% (MoM) for April, much higher than expected. This is the fourth consecutive month where CPI breached the RBI target of 2-6% and the highest retail inflation since 2014.

The internals of the CPI: (MoM)

• CPI – 7.79% v/s 6.95%
• Food inflation - 8.38% v/s 7.68%
• Core inflation - 7% v/s 6.4%
• Vegetables 15.41% v/s 10.57%
• Clothing and footwear - 9.8% v/s 10.2%
• Food & light – 10.8% vs 7.52%
• Oil and fat – 17.28% v/s 18.79%
• Vegetables – 15.41% v/s 11.64%
• Pulses – 1.86% v/s 2.57%
• Housing – 3.47% v/s 3.38%

These numbers were much worse than expected and it is sure to send the market into a tizzy as it will now expect the RBI to go aggressive on the rate cuts to tame this unleashed monster. RBI will also have to soon pen an eloquent and pragmatic letter to the Parliament (before Oct), explaining why it’s inflation projections have been so way off the mark, that too for four consecutive months.

April is the first month which reflects the fuel price hike, which had been kept frozen since Nov’21.  Also, with rupee depreciating to Rs.77-levels, the “imported inflation” has only gone up further. Higher inflation will obviously put a lid on spending and that will impact growth.

IIP for March came in at 1.9% v/s 1.5% (MoM). Manufacturing grew by a mere 0.9% and the only sector which showed a growth was electricity at 6.1% and that can be attributed to the heat wave. IIP, at this juncture don’t mean much because unless and until we don’t get a handle on the CPI, growth will continue to hurt.

Most economists expect, based on today’s data for inflation, to start showing signs of abating by end of 2022 and could end FY23 with CPI at 6 to 6.5%.

Well, the market does not have much good macro data to bank on when it opens for trade tomorrow. But yes, it could look at the earnings and order book of L&T and not feel too pessimistic. Shrinking margins and profits, despite the rise in revenue will continue onto Q1FY23 numbers too as inflationary pressure will continue to felt.

For the man on the street, life is tough, what with cost of living rising beyond his ability to  earn. With interest rates also going up, the EMI burden for the middle class is only going to increase. Ukraine and Russia are at war but for most of us Indians, its been war times since 2020 - first against Covid and now prices.

Yes, inflation is now the snake in the lost paradise…..