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Below is Statement on CPI Data & Market outlook by Vivek Goel, Co-founder and Joint Managing Director, Tailwind Financial Service Pvt Ltd

Market Outlook

Investors saw a sharp correction in markets on Monday as concerns on inflation and consequent policy action rose after US inflation data came in last Friday. India inflation data might help ease concern on the domestic front. However, given the risks from high oil prices and expectation of Fed's pace of tightening in upcoming policy might keep the markets volatile in the near term.

Retail inflation eases slightly; still above RBI target for 5th consecutive month

CPI inflation as per latest release came in at 7.04%, easing from April's 7.79%. Despite cooling off from previous month, persistent rise in crude oil prices (biggest contributor with 9.5% rise in fuel prices) meant that inflation continued to remain above RBI target of 2-6% for the 5th consecutive month. This was however; broadly in line with expectations, given RBI had revised estimates upwards in their latest policy announcement to 7.5% for Q1FY23.

Core inflation (excl. food, fuel, pan & tobacco) also eased in line with headline inflation, easing to 6.4% compared to 7.3% in April. This was led by Clothing & Footwear at 8.9% and Transport & Communication at 9.5%. On the other hand, food inflation remained sticky at 7.8% (April: 8.1%) driven by spikes in vegetables (18.3%), oils (13.3%) & spices (9.9%).

Concerns on inflation have risen with sharp spikes in oil, commodity and food prices on the back of geopolitical tensions and supply chain disruptions. It continues to weigh in on the policy actions and is now driving policy reversal from the earlier accommodative stance during the past couple of years. However, the current level of inflation when compared to previous week's US data of 8.6%, provides some comfort in terms of relative urgency of tightening. Government measures to cut duty on petrol and diesel along with subsidies on LPG gas cylinders, among other measures, also helped in containing overall inflation.

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