Economy: Inflation, IIP Figures and More!!!
Inflation rose sharply as per the latest data released for the previous month. The spike is attributed to the rise in food and crude fuel prices. The data quashes any hope of repo rate cut when the RBI meets to discuss the monetary policy in the coming month, on the contrary RBI may contemplate hiking the rate.
Introduction of GST may have some impact on the economy as Business houses are still in the initial phases of implementation. However, the decision to slash GST rates on many of the items is expected to ease of inflationary pressure in the coming months. The festive season as well as unfavorable monsoon may have also contributed to the inflationary trends. Thus, the chances of further cut in the repo rates remain remote for the time being at least.
RBI will hope that the situation remains under control in the coming months.
Retail Inflation rose to 4.88% in November, 2017, as compared to 3.58% in the previous month. Retail Inflation is on steady rise since June when it was at its lowest level. CPI recorded is the highest in last 15 months. Inflation surging in the last couple of months could be a worrying sign for RBI as it has breached the medium term target of 4% set previously. However, RBI has revised the inflationary target to 4.2% to 4.6% for the latter half of current fiscal year.
The Food Inflation rose to 4.41% in November as compared to 2.26% in October. Whereas, Crude Fuel and Power Inflation spiked to 7.92% as compared to 6.36% rise in the previous month. Crude Fuel prices is on the rise as it has touched the 30 month high, as the prices in Global market has been fluctuating.
Consumer Food Inflation has 47% weightage in CPI Index. CPI falling, which is attributed to higher weightage being given to retail inflation, reflects the true impact of inflation on Common People. Going forward, stability in CPI will lead to strengthening of the economy and would call for changes in the monetary policy.
WPI rose to 3.93% in October,’17, the highest observed in last couple of quarters. The spike is attributed to spike in the prices of Food and Crude Fuel. This is the highest in eight months. Food Inflation grew 4.1% as compared to 3.23% in the previous month. However, Crude prices marginally slowed to 8.82% as compared to 10.52% in the previous month, Manufacturing remained static at 2.62% during the same period.
The new index provides Primary Articles with 22.62% weightage, 64.23% for manufactured products and power and fuel with 13.15%. Any further spike in inflation will cause of concern for the RBI.
IIP slide to 2.2% in October,’17 as compared to growth of 4.14% (revised) in the previous month, according to the new dataset. Industrial growth is essential for creation of jobs and growth of the economy. Manufacturing, Electricity and Mining are the core components of the Industrial Output which has been retained in the new series as well. In the days ahead the performance of these sectors will be instrumental in the economic growth.
Electricity grew at 3.2% while Mining remained stagnant whereas, the Manufacturing Sector recorded the growth of 2.47% during the same period.
10 out of 23 industry group in manufacturing sector have witnessed positive growth in August,’17.
Manufacturing Sector constitutes 77.6% of the new IIP index while 14.4% is allotted to the Mining sector and 8% to Electricity.
Retail Inflation above the mid-term target is a concern for RBI.
Growth in Industrial output is essential for the economy, primarily in the Manufacturing sector.
Industrial Output is expected to improve with the Industries coming out of the demonetization impact and looking to be on track on growth track.
Goods and Service Tax (GST) has been introduced and the impact on the inflation needs to be evaluated. The revision of GST rates is expected to help keep Inflation in control.
US policy is bound to create few concerns in the India specially the IT Sector which has major business ties. One has to remain cautious with decision making, while “wait and watch” would be the ideal alternative in this scenario.
RBI has achieved its primary target of keeping the inflation at manageable level. However, they should formulate a plan to boost the industrial output which would lead to generation of jobs in the economy.
Focus should also be on generation of jobs for the Young India as some reports have raised concerns related to rise in unemployment rates.