US Inflation data has upset global markets! Here’s what that means for your pocket

Fuel companies have already suffered record losses to absorb a global price rise and smartphone shipments have also reduced due to inflation.

FPJ Web DeskUpdated: Wednesday, September 14, 2022, 01:46 PM IST
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Three state-owned fuel companies in India have already suffered losses by absorbing inflation. | File photo

A rise in prices for fuel, smartphones, fuel and pharmaceuticals is impacting consumers in India, and also hitting major companies in the sectors if they absorb price rise. One thing these three have in common is that they depend heavily on imports, and are hence the most visible manifestation of global inflation in the Indian market. Since US inflation has remained higher than expected in August despite falling from a record high, it’ll cause ripples which are bound to hit Indian shores.

What happened?

After inflation in the US reached an all time high in July at 9.1 per cent due to a post-pandemic demand surge, it was expected to fall to 8.1 per cent. But the data upset global markets as inflation didn’t drop below 8.3 per cent, and this has also triggered fears of an interest rate hike by the US federal reserve. With imports of goods and services accounting for 20 per cent of the GDP, global inflation will seep into India as well.

Why should you care?

Now those are all statistics, but what does inflation in the US have to do with your monthly bills and other expenses? Simply put, Indians may have to shell out more for fuels, smartphones and medicines. While India’s dependence on oil imports went up to 85.5 per cent in 2021-22, dependence on Chinese imports for FY21 remained at 60%, despite a 33% drop.

By absorbing global inflation, three state-owned oil companies in India have already suffered a record loss of over Rs 18,000 crore in the first quarter of 2022. Smartphone shipments to India also went down by 28 per cent as the impact of inflation on consumer demand led to a decline in sales. These developments indicate how India imports global inflation, and the current inflation data won’t make things easier.

What lies ahead?

To control inflation, the US federal reserve may also hike interest rates to reduce availability of cash, which will restrict consumer spending and subsequently demand. Higher interest rates may make borrowing costlier but they encourage people to park their money in savings accounts. This means that global investors are more likely to keep their money in American banks.

When RBI responds with an interest rate, making loans costly in India, it’ll reduce cash circulation in India, and increase rupee rates. But this isn’t necessarily a good thing, since it will impact India’s exports as they’ll get expensive.

This explains why Indian stock market indices were trading lower following the release of US inflation data, which came as a disappointment, after staying in the green for four days.

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