Inflation has been one of the primary concerns of the Indian economy in the past few years for which the RBI raised the repo rate and didn’t decrease it for a long time now. While inflation seems to be easing in the West, India’s CPI inflation tends to rise again after easing a bit during the middle of the year. In October 2024, for which the India CPI inflation data released yesterday, shows a rise in the Consumer Price Index to 6.21%. It has come as a shock to the entire economy and the stock market as the CPI inflation jumped to a 14-month high. However, some relief has come in the form of a rising Index of Industrial Production which jumped to 3.1% in September 2024 as per the report. So, why is inflation rising again? What does it mean for the economy and markets? Let’s explore.
Latest Inflation Data
The rise in India’s retail inflation started in September only after declining in July and August. In the month of September, the CPI inflation stood at 5.49% which was a 9-month high. If you look back to October 2023, a year back the inflation stood at 4.87%, lower than both these months’s inflation.
The 6.2% CPI inflation that has been recorded for October 2024 is even higher than the upper tolerance level of the RBI. The target inflation of the government is 4% with 2% up and down, and October’s inflation has surpassed the uppercut and now rate cuts seem further distant.
Within the overall CPI inflation data, food inflation soared the most as usual as it has been rising continuously. In October, the food inflation stood at 10.87% which is higher than September’s 9.24% and way higher than October 2023’s 6.61%.
Another interesting fact is that the rural inflation rose higher than that of urban inflation. While urban inflation for October was 5.62%, that of rural areas stood at 6.68%.
What’s driving inflation high again?
As India’s retail inflation was easing, people were becoming hopeful about rate cuts in the near term but again the inflation is rising sharply which is making the entire market cautious and worried. The prime reasons behind this sharp rise have to be the Middle East crises which inflated the oil prices, and in turn, the transportation of goods has become costlier. This has affected the food items the most.
Apart from rising fuel prices, the weather conditions which were harsh and heavy rainfalls damaged crops to a huge extent, leading to less supply and high demand.
Index of Industrial Production Data
The IIP data also released by the National Statistics Office yesterday for the month of September however shows the country has witnessed growth in its production levels. While in August the IIP declined to negative 0.1% but in September 2024, it went up by 3.1%. However, it is still not even half of what IIP was a year back in September 2023 at 6.4%.
The manufacturing sector grew the most at 3.9%, while the mining sector only rose 0.2% and electricity production rose by 0.5% in September 2024. Even the half-yearly IIP for the April -September duration rose by 4% against a 6.2% rise in the same period in 2023.
How stock market react to this CPI inflation data?
Today, both the broad market indices Nifty 50 and Sensex are trading in red. The exponential rise in India’s CPI inflation again took a toll on the economy and the markets today. Now it will be crucial to see how RBI tackles the inflation rise and when a rate cut comes which people eagerly waiting for.
Source: News18
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