Headline CPI inflation might have peaked out

According to MOFSL research, the peak out trend might provide some relief to market participants, especially in the bond segment.

"We expect IIP to remain broadly unchanged in YoY terms in June'21, before reporting marginal growth of 1-2 per cent YoY over July-Aug'21."

"Overall, we do not see RBI hiking rates in FY22."

Recently, CPI-based retail inflation came in unchanged at 6.3 per cent YoY in June 2021.

"The number was marginally above our expectation of 6.1 per cent, but below the Bloomberg consensus of 6.6 per cent YoY in Jun'21. More importantly, price data for Jun'21 was collected from 80 per cent of the markets, compared with 68 per cent in May'21, implying better reporting as lockdown rules eased in several states last month."

The food inflation came in at 5.2 per cent YoY in June 2021 vis-a-vis 5 per cent inflation in May, fuel and light inflation rose to 12.7 per cent YoY and inflation in clothing and footwear to 6.2 per cent YoY.

"On the other hand, inflation in miscellaneous items came in flat at 7.3 per cent YoY in Jun'21."

"Within miscellaneous items, education and household goods and services were the only sub-components to have reported higher YoY inflation in Jun'21."

In addition, MOFSL expects IIP to remain broadly unchanged in YoY terms in June 2021, before reporting marginal growth of 1-2 per cent YoY over July-August 2021.

"Overall, we expect real GDP growth of 20 per cent YoY in 1QFY22."