CHART OF THE WEEK 📈
In June 2022, India's CPI inflation exceeded RBI forecasts for the sixth time this year. This might suggest that more interest rate hikes are on the way.
Data suggests increasing inflation in 70% of the items that are used in inflation calculations. A majority of this is the classic roti, kapda and makaan; together food, clothing and housing have a 60% weightage in the inflation calculation.
The weightage for constituents is usually proportional to the average spending pattern of an average Indian.
Inflation for Food, which makes up for almost half the inflation basket, has increased from 6% last year to 8% in June 2022. The trend is the same globally as the Russia-Ukraine war saw a surge in trade imbalances and protectionist policies across the world. Clothing and housing, which make up for 7% and 10% of the pie too saw an increase in inflationary trends.
The maximum inflation (and sticky at those high levels) is being seen in energy. Fuel becoming more expensive is probably one of the most glaring signs of inflation as the government announces hikes, and your pockets go lighter each time you refuel your car.
Inflation for Pan, tobacco, and intoxicants has dropped from 5.5% in June 2021 to 1.8% in June 2022. This can partly be attributed to the lack of an increase in government taxation on these products last year. However, they form only about 2% of the total inflation, and hence the decrease in inflation here doesn’t really make too much of a difference on overall numbers.
But there’s some hope of inflation reducing, which has emerged only recently.
With the Fed going full-speed on interest rate hikes, fears of a recessions are getting real and suppressing commodity prices.
Moreover, India’s monsoon predictions and rainfall so far in the month of July 2022 look good. A good monsoon usually implies a good crop, which means healthy supply, and normalised prices.