Reasons for rising inflation from current levels

For more than a year now, India and the world have been going through the worst effects of the Corona epidemic, which has had a devastating effect on the economy. Almost all industries were hit hard by the announcement of drastic measures by governments, including lockdowns, to control the epidemic, which was followed by a relief package announced by the government and the central bank to get industrial operations back on track and boost economic growth. Now its positive effects are also being seen.

Adequate liquidity conditions have been created in the market at the present time and the flow of excess liquidity towards the stock market has created a tremendous bullish atmosphere in the domestic markets. However, how adequate growth with sufficient liquidity can boost inflation in the next 6-12 months is at the center of discussion among investors, said Trideep Bhattacharya of Axis AMC.

There are good reasons to expect inflation to rise from its current levels. The main factor in increasing the rate of inflation is the increase in the price of commodities used for the production of the product, which may result in an impact on the price of the final product. Economic activity around the world is also returning to normal as we emerge from the epidemic.

For example, in the last one year, copper prices have risen by 8 per cent, while steel prices have risen by about 20 per cent. Prices of base metals like aluminum, zinc, nickel and iron ore also rose by 15 per cent, 21 per cent, 20 per cent and 5 per cent, respectively. Among precious metals, gold and silver prices rose more than 3 per cent and 6 per cent, respectively.

However, with the rise in prices, inflationary concerns in the domestic market as well as rising raw material prices for many sectors have gained momentum.