about 16 days ago
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Inflation eases in June and IIP remained steady in May – that in short is the macro data for this month.

CPI for June came in at 6.26% v/s 6.3% (MoM).

A quick look at the inflation internals: (MoM)

  • Food inflation at 5.15% v/ 5.01%
  • Vegetables 0.7% v/s (-)1.92%
  • Fule & light – 12.68% v/s 11.58%
  • Housing 3.75% v/s 3.86%
  • Clothing and footwear 6.21% v/s 5.32%
  • Pulses 10.1% v/s 9.39%

This data might seem pretty benign as of now but what we are seeing underneath these numbers is cost-push inflation taking over. Inflation is being driven by supply rather than demand. With fuel prices touching the sky and commodity prices rising all over the world, this macro number is like a multi-headed hydra, just rising northwards.

But despite this, RBI, at its 5th August meet is expected to sit tight on the rates, as it would want to wait and watch, see where Covid is headed and how far vaccination is able to reach. The accommodative stance is expected to continue well into this year; most economists are expecting any rate hike only by early 2022. Yet, its undeniable that inflation is a creeping worry.

As such also in the minutes of RBI's June policy meeting, it clearly spelt out that while its focus will be on growth, it will also remain watchful on inflation.

On the IIP front, for May, it came in at 29.3% v/s 134.4%. This number has no real meaning as we are looking at a very low base effect on account of the lockdown last year. Almost all sectors registered a sharp uptick YoY, manufacturing was at 34.5% v/s (-)37.8% and mining rose to 23.3% v/s (-) 20.4%. Electricity was at 7.5% v/s (-)14.9%.

For now, IIP does not hold much relevance but CPI is significant. Events which will have an impact over the next few weeks will be Q1FY22 earnings, progress of monsoon and more importantly, the third wave – is Covid going to hit us hard all over again or will vaccinations help keep things in more control than the second wave?

So, as we move ahead into 2021, its once again events which are not in our control which control our lives – monsoon and the pandemic.

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