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Home / News / India /  Watch for this week: Omicron updates, India inflation

Every Monday, Mint’s Plain Facts section features five key data releases and events to watch out for in the coming week. The coming few days will give us more clarity on how the risk of the Omicron variant of coronavirus evolves. India is set to release its monthly inflation data this week. Monetary policy announcements are due from three top economies even as they face a renewed covid-19 surge: the US, the UK and the EU. Here’s more:

 

1. Omicron updates

The Omicron variant of the coronavirus has arrived just as the world economy was reopening after nearly two years of the pandemic. The coming week could bring more updates, such as further guidance from the World Health Organization (WHO), travel restrictions, vaccine efficacy claims by jab-makers, and market reactions.

Domestic stock indices have witnessed a spike in volatility over the past few trading sessions as investors fret over how Omicron could derail recovery. Last week, Pfizer and BioNTech said a booster dose of their vaccine would be effective against Omicron. But the WHO is worried that rich countries will start hoarding these booster shots and deny the poor ones at this critical juncture.

Research is still on to determine Omicron’s transmissibility and severity, both of which could determine the course of the pandemic. The list of countries that have started imposing travel bans is expanding fast despite criticism of such decisions. Will the world get some comforting news this week?

 

2. India inflation

The government will release retail and wholesale inflation data for November this week. In October, retail inflation was below the Reserve Bank of India’s (RBI’s) upper tolerance limit of 6% for the second straight month. But wholesale prices surged 12.5%.

This sharp divergence between retail and wholesale price movement is mainly due to the high weightage assigned to food items in the retail basket, which has kept the headline figure in check due to a favourable base effect.

However, vegetable prices have been on the rise for the past few months. This will add to inflationary pressures even though the base effect may still conceal some of that impact.

While retail inflation, the policy anchor for the RBI, could print a sub-6.0% figure again in November, the rate-setting panel may not be able to avoid price pressures on all fronts—food, fuel, and supply-chain issues included. A spillover of high wholesale prices to the retail side in coming months may also become a cause of concern.

 

3. US Fed meet

Inflation in the US has been hitting new highs every month. Yet, monetary policymakers had so far shrugged it off by calling it “transitory". In what could be seen as a major shift in policy outlook, Federal Reserve Chair Jerome Powell recently said it was probably a good time to retire that word. How this translates into policy action will be known when the Federal Open Market Committee announces its monetary policy review on Wednesday.

Powell’s comments came against the backdrop of consistently rising price pressures from food, energy products, and global supply-chain issues that are unlikely to get resolved anytime soon.

The Fed has already embarked upon normalization of the pandemic-era loose monetary policy, and analysts expect it to announce a faster pace of tapering of bonds to $30 billion a month this week. This could be followed by sooner-than-expected interest rate hikes next year.

4. UK policy & inflation

Inflation data is due from the UK on Wednesday. As in the US, the energy price surge and global supply bottlenecks have pushed retail inflation in the UK as well, to almost a decade high of 4.2% in October. This is already double the Bank of England’s (BoE’s) target rate of 2%, and the upward movement could persist until early next year.

Despite growing pressure to act through monetary policy, the central bank expects inflation to dissipate over time as supply disruptions ease, global demand rebalances, and energy prices fade. When the BoE policymakers meet on Thursday, they may be more concerned about signs of a moderating pace of economic growth. With renewed covid-19 concerns, economists expect the rate-setting committee to adopt a less aggressive policy tightening stance as it might wait to assess the economic implications of the new Omicron variant of coronavirus.

 

5. ECB policy

Driven by reasons similar to the US and the UK, eurozone inflation rose to a record level of 4.9% (y-o-y) in November, from 4.1% in the previous month. The final reading, with more details, will be released on Friday. Higher energy prices and supply chain problems are restraining industrial output and feeding into a sharp rise in headline and core inflation. The new virus strain and a surge in infections across the continent are also a cause of worry.

Going forward, inflation prints are expected to slide downwards through the next year as energy prices abate. The European Central Bank (ECB) has struck a cautious and patient tone with respect to policy normalization and is widely expected to keep interest rates unchanged and pare asset purchases in the coming month. The decision by the governing council of the ECB is awaited on Thursday. A recent Credit Suisse report expects sustained high inflation and expansionary fiscal policies to lead to hawkish guidance on rates beyond the next year.

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