By:- Nirav Karkera, Head of Research and Fund Manager, W by Groww.
Inflation has climbed steadily over the past two quarters, and recent prints show no loss of momentum. Food and supply pressures are the main drivers. Onion, which carries meaningful weight in the basket, has seen a steep rise in prices. This accounts for a meaningful share of headline inflation.
Freight and eating-out costs are picking up pace. These are the key channels through which a supply shock spreads to the broader basket, though most services remain contained for now. Rural households are carrying a heavier burden. That raises concerns for consumption, especially with a weak monsoon and El Nino threatening the rabi harvest.
Fuel retailers are still absorbing much of the rise in crude. Any pass-through to pump prices could hit freight and food together, and quickly. A weak rupee keeps imports expensive.
The good case could start taking shape towards the end of the year, though a soft base means the headline will take longer to show it. It depends on healthy kharif arrivals, government action to cool vegetable prices, softer crude and a stable rupee. With costs rising and demand soft to stable, policy rates are likely to stay tight as the RBI works to keep inflation within its tolerance band.
