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Retail Inflation Highest in Five Months
Apr 13, 2017

Retail inflation rose to a five-month high of 3.81% YoY in March. This is mainly on the back of higher fuel prices. Retail fuel inflation accelerated to 5.56% in March from 3.90% a month ago. Food prices rose 1.93% on the year, slower than a 2.01% annual increase a month earlier.

The data vindicated the RBI's decision last week to keep its policy rate on hold amid concern about prices. The RBI kept its key lending rate on hold for a third straight meeting last week. The central bank also considered the possibility of below-average monsoon rains this year, which will again push the food prices higher.

It is important to note that the RBI gradually reduced the remonetisation pace in March, fearing a surge in CPI and WPI inflation due to pent-up demand after notebandi. The increase in currency being circulated was 5.9% week-on-week in January 13. It slowed to 4.6% in February 10, and further to 4% in March 10.

Inflation excluding food and fuel has also exhibited persistence and has been significantly above headline inflation since September 2016. India's policy rates will see a long pause if the inflation moves ahead on the same trajectory and in case monsoon behaves abnormally then even a reversal in rate cycle is a possibility.

But what's the impact of rising inflation on stock returns? My colleague, Ankit Shah has written a brilliant piece on this subject. He writes:

    The government is spending a ton of money to boost rural consumption.

    The RBI has indicated that it may be done with rate cuts.

    As spending returns to normal after demonetisation, cash circulation in the economy will rise.

    Early predictions of the monsoon are not very positive.

    The trends point to a period of high inflation. Ideally, investors should be in stocks that can weather the storm.

    But which stocks can deliver such returns during a period of high inflation?

Read more to find out.

Data Source: Central Statisitic Office, GOI

This Chart Of The Day was published in The 5 Minute WrapUp - Six Stocks that Beat the Sensex Black and Blue

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