Inflation likely rose to 6.50% in July; can a fresh spike in retail inflation upset the market?

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RBI has revised its inflation forecast for the fiscal year 2023-24 to 5.4 per cent from 5.1 per cent previously, and projected inflation to average 6.2 per cent in July-September at its meeting concluded on 10 August. The central bank decided to keep the repo rate unchanged. Read more: July retail inflation may hit 6-mth high of 6.5%: Poll The market appears to be in a consolidation phase and a significant spike in retail inflation print may further weigh on sentiment.

However, this could be short-lived as the long-term fundamentals of the market remain strong. G. Chokkalingam, Founder & Head of Research at Equinomics Research believes CPI inflation significantly beyond 6 per cent can hit the sentiment for equity markets briefly as he expects inflation will moderate in the next two months because of a normal monsoon.

"Markets could fall another 2 per cent in the short term. However, this spike in CPI would be only temporary as monsoon performance in terms of cumulative rainfall and spatial distribution across 36 subdivisions. Also, water storage in major reservoirs and areas sown under the Kharif crop has improved significantly.

Hence, CPI is expected to moderate significantly within two months," said Chokkalingam. Chokkalingam believes only if global crude oil prices move beyond $100 that would lead to a further upward revival of retail inflation. Aamar Deo Singh, Head Advisory,Angel Onesaid if India's retail inflation rises to 6.50 per cent, as predicted in July, due to an increase in vegetable prices, the markets will undoubtedly sit up and take notice as it will be much higher than the RBI's maximum tolerance level of 6 per cent.