Inflation and interest rate keeps market fluctuate

Inflation

Apart from concerns over a slowdown of the US economy and the euro zone debt crisis, high domestic inflation and fears of an interest rate hike will keep the stock market volatile this week, say experts. Headline inflation stood at 9.44 per cent in June, while weekly food inflation shot up to 9.9 per cent at the end of July, sparking fears of a further round of interest rate hikes to tame prices.

The market was surprised by the higher-than-expected rate hike of 50 basis points by the Reserve Bank last month.Now, the sharp spurt in food inflation has raised concerns that the Central Bank will stick to its monetary tightening policy. Food inflation, as measured by Whole Price Index (WPI), stood items in the corresponding week of August, 2010, was 14.56 per cent. Finance Minister Pranab Mukherjee today expressed concern over rising food inflation, saying it is perilously near double digits. As per the official data released today, prices of onion soared by 57.01 per cent year-on-year and potato rose by 13.31 per cent during the week under review. Fruits became dearer by 21.58 per cent and vegetables overall by 15.78 on an annual basis.

Prices of protein rich items, egg, meat and fish were up 12.62 per cent, while milk and cereals became dearer by 9.22 per cent and 4.64 per cent respectively. "I am again telling monetary authority anywhere in the world, inflation is the bigger concern, "RBI Deputy Governor K C Chakrabarty said on the sidelines of Skoch summit here.