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Wholesale price inflation (WPI) grew at its slowest pace in 22 months in December 2022. Consumer price inflation (CPI) data that was released earlier also eased, rising at its slowest pace in one year.
However, the absolute inflation rates — WPI at 4.95 percent and CPI at 5.72 percent — are still not comforting. Prices continue to rise on a high base. According to Motilal Oswal Financial Services, wholesale prices increased by 11.5 percent in the nine months to December 2022 versus a 12.7 percent rise in the year-ago period.
Yet, the latest readings confirm a moderating trend in inflation. Prices in developed markets are also rising at a relatively slower pace and are easing the pressure felt by policymakers, particularly central banks. These trends, if they persist, can persuade central banks to give up jumbo rate hikes.
Even then, investors should not rush to count on monetary policy relief. In India, easing prices of food and vegetables are largely responsible for the moderation in inflation. Excluding vegetables, consumer price inflation in December was higher than in November, points out Motilal Oswal.
The softening of manufactured goods inflation will aid producers. But the relief for producers may be limited in the near term as most of them have not fully passed on input cost increases in earlier months.
Similarly, the easing of energy prices has led to moderation in crude, petroleum and natural gas inflation. However, gains on the energy front can reverse if China manages to get its economy back on track. Following a pushback to its zero-COVID policy, China has eased restrictions, setting the stage for an economic recovery in 2023. This can drive demand for fuel and other commodities such as coal.
With the Russia-Ukraine war continuing and energy supplies constrained, a strong revival of China's economy can drive up energy prices.
Note that fuel and power prices continue to remain elevated. Amid rising electricity demand, the government has recently urged power producers to stock imported coal for blending. A fully reopened China can drive up demand for coal. So, even as the latest data points to moderation in headline inflation, upside risks to global energy and commodity prices remain.
Budget Snapshots: There have been a few years in which the Budget has changed the market trend. But that is not always the case. For some years, the market continued with its previous trend of responding to other factors such as the earnings season and the credit policy.Investing insights from our research team
Budget 2023 Expectations: Push for capex-led growth to continue
Federal Bank Q3 FY23: Picture-perfect earnings, more re-rating awaited
Atul: Next few quarters are tough
Tracker
Economic Recovery Tracker: Retail auto sales tumble again
What else are we reading?
Budget 2023: Markets expect FM to bat like SKY, bowl like Umran Malik, field like Ravindra Jadeja
Cost pressures ease for cement firms, will the Budget 2023 spur demand?
IT investors should mind the gap between orders and revenues
Small businesses are using tech to go global
The age of pro-cyclical de-leveraging
How Apple tied its fortunes to China (republished from the FT)
Budget 2023: Demand-side measures required to boost growth
Make money first. Geopolitics can wait
Head to Tokyo or Seoul for the latest Gucci and Louis VuittonTechnical Picks: IndusInd Bank, Adani Green, Mentha oil, Hero MotoCorp, and TD Power Systems (These are published every trading day before markets open and can be read on the app).
R Sree RamMoneycontrol Pro