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After a record 9.1 percent year-on-year (yoy) increase in June, the highest since 1981, US consumer price inflation decelerated to 8.5 percent in July. The data released on Wednesday showed a month-on-month pause too as opposed to forecasts of a 0.2 percent increase.
Decelerating inflation has, in turn, eased fears of sharp rate hikes by the US Federal Reserve for the rest of 2022. However, central banks usually wait to see a trend of deceleration over a few months and a more broad-based softening of prices. For now, the inflation slowdown is driven mainly by a fall in crude and energy prices. High food inflation remains a bugbear, so do high rent and wage growth.
In any case, July inflation data brought optimism to risk assets, triggering a rally in global equity markets. While the Dow Jones and Nasdaq closed higher yesterday, Asian indices opened higher on Thursday, with India’s NSE Nifty 50 and BSE Sensex opening with a gap up.
Indian equities would take further cues from the domestic CPI data to be released on Friday. According to a Reuters poll of 48 economists conducted between August 2-9, retail inflation likely fell to an annual 6.78 percent in July, a five-month low, from 7.01 percent in June. But it will stay well above the Reserve Bank of India's (RBI) upper tolerance limit for the seventh consecutive month.
While softening fuel and energy prices internationally could bring some relief, the outlook is uncertain due to the uneven monsoon this year and a weak rupee. Prices of key food items such as palm oil, sugar, soyabean and rapeseed are up, while cotton prices too are at record highs.
To be sure, inflation is biting consumers. “If NielsenIQ’s data are any indication, then consumers are clear on moving down the price chain and not up, given how inflation is biting,” points out Ravi Ananthanarayanan in this article on how FMCG companies are reinventing packaging to retain consumers.
Talking of consumers and shopping, this FT article highlights social media’s next big bet,which is a livestreaming in ecommerce!
Investing insights from our research team
What else are we reading?
Fed’s Mary Daly says it is too early to ‘declare victory’ on inflation fight (republished from the FT)