High prices of food items and fuel, particularly of spices, vegetables and oils along with household services contributed to the sharp increase in the inflation across the country. A level which is seen as being partly responsible for preempting the unscheduled rep rate hike by RBI running to 40 basis point.
THE FACTS BEHIND CURRENT INFLATION
Retail inflation increased to an 8 year high of 7.79% in the month of April which is above the RBI inflation target set for the fourth straight month, data released by the NSO said.
The food prices inflation surgery to a 17 month high peaking to 8.38% in April (Rural and urban combined) from 7.68% in March. Rural inflation rose to an 8 year high of 8.38 % while urban inflation was at 7.09% which is 18 month high. The previous high of the retail inflation was recorded in May 201 at 8.33%. Among states, the highest inflation rate was touched by West Bengal and them MP and followed by Telangana.
Cor inflation - to non fuel and non food components, in April touch a 95 month high of 6.97% in April, remaining more than 5% for 24 consecutive months. Some of the experts said the base effect may moderate inflation in the coming months but it is expected to remain above 6.5%, raising expectations of a back to back rate hike in the monetary policy meeting of the RBI in June.
Inflation is being witnessed as posing the biggest threat to the economy and the RBI is looking forward at reversing all measures - policy rate cuts and liquidity infusion, taken during the pandemic over the next couple of years along with the measures to kill demand.
RBI TAKE ON INFLATION
IN anticipation of the inflation print, the rupee has gone down to its record low while stocks plummeted 2% and main concerns that runaway prices may force the RBI to act upon more aggressively to tighten rates. There could be continuous rate hikes in the next meetings.
Aditi Naya, The chief economist at ICRA hinted that wea consumption demand is likely to witness more headwings in the following months, Moving forward the surge in global commodity pricing following the ongoing Ukraine-Russia crisis and the resultant ruse in the domestic inflation owing to surpass of higher input costs across several categories of goods is expected to impact consumption demand and thereby may hurt the growth in the consumer goods output.
HOW INFLATION AFFECTS RETAIL INVESTORS
Every sensible investor and individual runs on a budget. So that we can track expenses, and optimise savings and investments.
With the increase in inflation, goods and services become expensive, which results in high expenses which in turn results in less savings and investments.
And this broadly affects the corpus and compounding.
Eating returns of the portfolio!
Inflation simply erodes the value of your investments.
Debt instruments will yield less returns and equity instruments will get affected due to volatility caused by fear of inflation and rate hikes.
Highly volatile markets and bear run!
Stock markets may remain in a bearish phase due to constant fear of rate hikes by RBI to control inflation.
So what can we do?
Do not ignore inflation and its implication while doing financial planning
Look for an investment alternative that offers returns that can beat inflation in the longer run!
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