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Charts & Analysis

July CPI At 9.86% and Still Too High

July’s Consumer Price Index inflation showed that prices are still increasing at an alarming rate, even though the price change is less than 10%. Note however that these figures may be further revised later.

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This is still way higher than expected. Figures for June have been revised downwards from 10.02% to a lower 9.93%. The figure is simply too high, especially if you look at components:

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Food is at 11.5% which is ludicrously high. Clothing, Housing and Household items, and "Others", all go above 10%. Fuel and Transport – both linked, obviously – bring down the overall number but we all know that’s due to the government forcing the oil companies to hide the fuel price rises (and adding that to our tax bill).

The only positive is that urban inflation seems to be coming down. In the official numbers. Rural inflation still remains a concern.

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Overall, not very encouraging inflation numbers. However, markets seem to have liked them and have gone up 1%. I think that’s short term – the problem with inflation is that the longer it stays high, the more damage it does – and we will soon realize how bad the damage is.

  • piyush says:

    and the worst bit is that this is probably going to stay this way for much more time to come.. inflation has been elevated, but inflation expectations has become firmly entrenched.. and will be very difficult to root you..
    thing was, one had thought that things would be control with rbi tightening.. but then the fact is that rbi tightening will primarily affect borrowing led consumption or investment demand but not income led.. our case of inflation and expectations is led much more by income led and uneconomic tinkering of demand-supply of labour, wages, fuel and other economic goods by a central govt hell bent on destroying our economy.. as ruchir sharma said.. our govt has become much more preoccupied with distributing the pie rather than growing it..
    maybe RBI also realises that its tightening is having very little affect as compared to the side affects its creating.. but what can it also do.. it cant let such high inflation persist.. so its doing what its doing now.. maintaining reasonably high level of rates and hoping govts do their bit, and also global situation improves …
    or maybe the only thing that can remove this persistent inflation is a absolutely growth crushing policy.. or maybe not..
    funny bit is, despite knowing that the inflation situation is going to remain as fucked up for like maybe 2yrs .. somehow i still feel inclined to feel bullish towards stocks.. just knowing that periods of large under performance have led to bull market sooner or later.. our corporate profit margins have also fallen a lot from the highs previously.. and somehow if a expansion cycle kicks in all things – growth, profit margins and PE multiples can increase.. leading to a bull market.. but rational analysis suggests that’s definitely not on the cards soon..