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Moneycontrol Pro Panorama | The inflation story has a sting in the tail

Also in today’s edition of Moneycontrol Pro Panorama: Bitcoin’s risk quotient, the Weekly Tactical, Havells India stays the course, the Herd Immunity Tracker, COP26 has its task cut out, the curse of ‘old economy’ and more

October 22, 2021 / 04:18 PM IST
AP

AP


Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Is inflation really transitory as central bankers around the world have been telling us?

Food and energy prices have been rising around the world. In Mumbai, for instance, a litre of petrol now costs Rs 112.44 and diesel, Rs 103.26. The prices of coal have risen so much that many power plants are avoiding imports – one of the many factors for low coal inventory at generators today.

Globally, food prices are increasing. The FAO Food Price Index is up 32.8 percent from a year ago in September.

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While the situation is better in India, not all is well. On Sunday, the Centre said it was releasing buffer stocks of onions to stabilise the prices of that vegetable. “Efforts are being made to soften the prices of potato and tomato," a government statement said.

Soaring fuel costs will also have second order effect in the form of increased logistics costs for firms. Rising food prices will pinch discretionary demand.

The shortage of everything from fertiliser to chips has been exacerbated by supply chain snarls. Companies from Asian Paints to Hindustan Unilever are weighing the trade-off between margin protection and volume growth. It is a tough choice when the market situation is fragile.

Higher inflation is telling on rural India and the farm economy. Earlier this week, after HUL released September quarter earnings, its boss Sanjiv Mehta said rural demand has moderated.

Things could get worse for the farm economy if the fertiliser shortage and higher input costs persist. If the situation does not improve, then it can hit rabi prospects, agriculture income and also contribute to food inflation. All said, inflation will remain a worry for some months.

What is leading to all these shortages in the first place? While it is tempting to blame it on the pandemic, the real reason is chronic underinvestment in the ‘old economy’, writes Jeff Currie, global head of commodities research at Goldman Sachs, in a piece in the Financial Times. (Free to read for Pro Subscribers). But for investment to revive, prices must stay higher for longer to give confidence to businesses, he writes. What does that imply, read to find out.

Our research team has also written the following notes rich with investing insights:

Weekly Tactical Pick: IRCON International

Asian Paints: Margins take a knock in Q2 as cost pressures bite

Havells India: Cost pressure surfaces, but growth remains robust

ICICI Lombard – Higher health claims, merger weigh on H1 earnings

Indian Hotels Ltd: Strong results, well positioned to play upcycle

JSW Steel: Cost pressure hurts

Strong show by TVS Motor in Q2 FY22, buy for long term

Syngene: Look beyond the near-term input cost pressure

What else are we reading today? 

Bitcoin back in risk-on mode after ETF launch

Vaccination: A billion steps forward, but more to go

Herd Immunity Tracker: One-billion milestone reached, but vaccine hesitancy a concern

COP26 | If not net-zero, then what?

Technical Picks: BHEL, Federal Bank, GSFC and ICICI Bank (These are published every trading day before markets open and can be read on the app)

Ravi KrishnanMoneycontrol Pro
Ravi Krishnan is deputy executive editor at Moneycontrol

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