One of the most essential thing in Good Governance is the stability in Core Inflation. Despite, modifying the constituents and benchmarks to suit to the reportable needs of the Government, Inflation refuses to come down as Commission Agents & Traders get Rich quicker.
CPI inflation jumped to ~6.9% YoY in July, up 70bps from June. Fresh spike in vegetables and sustained rise in commodities (oil, gold, etc) pushed headline higher. Amongst components, food inflation picked up 80bps to 8.7% YoY. The high and rising food inflation was driven by spike in perishables like vegetables, meat and fish. But other items such as cereals, pulses, milk and fruits are either disinflating or showing benign inflation levels.
Core inflation (ex-commodities) in July climbed to 4.8% YoY (4.5% in June) despite a flat base. In our view, this is not a reflection of strong demand/pricing power, but is perhaps driven by cost-push on account of sustained rise in retail fuel prices in recent months. Telecom prices too seem to be contributing to the rise. That said, inflation is benign in housing at 3.3% (series low) and education at 3.2%. Given low base over the next six months and continued fuel price hikes, core CPI could remain elevated.
Going ahead, inflation print could remain elevated for a couple of months as the effect of supply disruptions may persist given intermittent lockdowns. Hopefully, the Government will come to the rescue of Lower Middle Class & the Lower Class which is badly hit by the Rising inflation amidst steep decline in income levels.