InvestorQ : How do you interpret the latest inflation announcement on 12 October?
diksha shah made post

How do you interpret the latest inflation announcement on 12 October?

Answer
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2 weeks ago


CPI or retail inflation for the month of Sep-20 came in at 7.34%. This is not only sharply higher than August but also the highest level since the last 8 months. This spurt in CPI inflation was largely on the back of higher food prices; both rural and urban.

Just to give you a sampler, food inflation touched a level of 10.68% in September as compared to just about 9.05% in August, sharp spike of 163 basis points. This is surprising because normally food prices taper in September because Kharif output starts to hit the mandis by first week of October.

This spike in inflation could largely be due to supply chain constraints. Core inflation was marginally lower by about 12 basis points at 5.65% in Sep-20 as compared to 5.77% in the previous month. However, core inflation above 5% remains a concern overall.

What does this mean for rates? This sharp spike in inflation rules out any possibility of rate cuts by the RBI in the foreseeable future. Inflation is above the extended inflation limit of 6%, which would impel the RBI to wait and watch till inflation comes to normal levels.