INFLATION COMING DOWN, OH SOOO SLOWLY!!!

CPI is showing some small signs of receding; its a tiny decline but for now, we all are ready to hang on to any small straw in the sea of rough macro data.

CPI for July came in at 6.71% v/s 7.01% (MoM); the seventh straight month when it has remained above RBI’s threshold of its target of 6%, meaning the MPC will have to write a letter to the Parliament in Oct, explaining why its targeting was so skewed. But if the RBI is looking at writing a letter to the Parliament in Oct, there is no way it is going to avoid rate hikes to tame inflation.

If inflation is coming down, even if slowly, does it mean that we are looking at inflation climbing down to comfortable levels soon?

That would be too early to predict; the truth is that inflation is not going to fall down to 4% any time soon; we are probably looking at FY24 and ahead for that elusive 4%. Going ahead, the pace of decline of CPI could be slower as metals and other commodities have already started climbing up once again. We are seeing vegetable and food prices coming down MoM and that’s the positive we need to hold-on to.

On the June IIP front, which nowadays the market does not pay much heed to, fell to 12.3% v/s 19.6% (MoM) v/s 13.8% (YoY). This means that the high base effect which was seen till May is now gone.

Tuesday we are unlikely to see much reaction to these numbers as they are very much in line; nothing untoward and that means, we will be back to tracking global macros and company specific trading.

The festive season is upon us as Q2 and Q3 are seasonally the best time for majority companies in India; all- analysts, companies, even the Govt and RBI, all have pinned hopes on people going all out and buying, celebrating, as this is after two years that we will be having festivities. Rains have been good, our reservoirs are getting full; so that is another positive to hold – good monsoon is good harvest and full reservoirs means life in cities will good too. Ideally, if we are able to keep the Covid/monkeypox/swine flu on the back burner, even if we remain in a status quo rather than getting worse, we can have some reasons to cheer.

RBI is not going to cut rates any time soon as inflation will remain the snake in the garden; we should in fact stay prepared for two more rate hikes; so no pause, no cuts for certain!

For now, let’s bury the hatchet on the economy and enjoy the long weekend ahead, celebrating India’s 75^th independence, with the tricolor seen fluttering all across the country.