Moneycontrol Pro Panorama | A mixed picture on inflation signals caution

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Two sets of data released by the government, today and yesterday, paint a mixed picture on the inflation front. Retail inflation captured by the consumer price index (CPI) eased in August. Prices increased 5.3 percent in August, slower than 5.59 percent reported in the earlier month, thanks to a moderation in vegetable prices and food inflation. The reading is in line with the Reserve Bank of India’s medium-term inflation target of 2-6 percent. With monsoon rains reviving and kharif crop sowing at normal levels, indications are that food prices may remain tepid.

Even so, there is no widespread cheer. Non-food prices continue to rise at a brisk pace. The wholesale price index grew by 11.39 percent in August, faster than 11.16 percent in July. The prices are driven by fuel and manufactured products. Outlook for non-food prices remains a concern. Crude oil, whose derivatives power several industries, perked up on concerns of tight supplies in the US.

The Organization of the Petroleum Exporting Countries (OPEC) warned that the Delta variant may pose a risk to oil demand in the near term (October-December 2021). But the oil cartel sees a rebound thereafter. With economies reopening and travel resuming the OPEC expects oil demand to rise at a faster pace next year and reach pre-pandemic levels. “In 2022, oil demand is expected to robustly grow by around 4.2 mb/d, some 0.9 mb/d higher compared to last month’s assessment,” OPEC said in its latest monthly oil report. Mb/d is million barrels per day. This can keep fuel prices elevated.

As such, core inflation, which excludes the volatile food and energy items, remains sticky. Core inflation eased a bit in August. However, it remained range bound at 5.5-6.5 percent this year, indicating cost pressures. “Core inflationary headwinds remain rife, especially with higher input costs and reopening pressures,” warns Nomura research.

On the positive side, the economy is making good progress on the recovery front. The Nomura India Business Resumption Index rose in the week ending September 12 from the prior period. Our Economic Recovery Tracker update also pointed to weekly indicators benefiting from the onset of festival season demand, except for a few indicators. The main risk to be watched out for is a third wave of the pandemic.

Specialty chemicals producer Ami Organics, whose IPO received strong investor response, made a stellar debut on the stock exchanges. The stock listed at a 48 percent premium against its IPO price. While Vijaya Diagnostic Centre also listed at a premium to its issue price, the public issue of auto component maker Sansera Engineering opens today.

Our research team has analysed the Sansera Engineering IPO and also the implications of the boardroom coup at Zee Entertainment (links below). Do read.

Investing insights from our research team:

What else are we reading today?

What HUL’s ‘Winning in the Decade’ means for investors

Know the debt-ridden Indian farmer

Global house prices rise at fastest pace since 2005, report says (Republished from the FT)

Picks from our technical analysts: WiproGAIL and PI Industries (These are published every trading day before markets open and can be read on the app)

R Sree Ram

Moneycontrol Pro

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