Monthly Inflation: Inflation continues to move higher as disruption continues

Monthly Inflation

- CPI inflation for July 2020 rose further to 6.93% compared to upwardly revised June data at 6.23%. Similar to last month, the supply related disruption in food items, higher petrol, gold prices and unfavourable base effect led headline inflation to move higher

- A sharp rise in vegetables prices, higher retail petrol prices and elevated gold prices are major contributors of inflation

- The sequential inflation in food inflation was also higher primarily contributed by vegetables, fruits, oils & fats, milk & products and sugar

- June CPI headline number was revised higher from 6.09% YoY to 6.23%. Many sub-components saw sharp revision both upwards and downwards. Cereals saw higher revision while fuel and light was revised down. This further indicates challenges in interpreting the inflation data

- Core inflation is now at 5.8% with major contributor being personal care & effects (primarily gold prices), transport & communication (retail petrol prices), household goods & services. Going forwards, risks to core inflation remain on the back of elevated international crude and gold prices

- Disruption all around encompassing data collection and supply side related disruption along with sharp rise in retail fuel and gold prices have led inflation to rise

- The medium term outlook for inflation, however, remains benign with robust Kharif sowing season, favourable base effect and overall weak economic sentiment

- Overall, the weak economic growth continued to take precedence over disruption driven short-term inflation data. Better prospects for Kharif sowing season, favourable base effect and weak structural demand due to economic slowdown augur well for the inflation outlook for H2FY21. RBI may want to look through the current abnormal data print and continue to focus on growth by adopting accommodating liquidity stance even though may not cut benchmark rates.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Inflation_Aug20.pdf

Source : Equity Bulls

Keywords