Economy: Inflation, IIP Figures and More!!!
Inflation has continued its downtrend as per the latest data released earlier in the month. The easing of inflation is largely due to softness in the food prices. It seems that RBI will now have to decide on the repo rate cut when they meet next to discuss the monetary policy.
Implementation of Goods and Services Tax (GST) is not expected to impact the inflation adversely in the coming months. However, the flood situation in some parts of the country may lead to hike in food prices in coming months, though the inflation is forecasted to remain within the acceptable range.
RBI had reduced the repo rates by 0.25% earlier in the month. But with the inflation rising, the chances of any further cut anytime soon seem remote.
Retail Inflation eased to 2.36% in June, 2017 from 1.54% (revised to 1.46%) in the previous month. Reversal of downward trend was largely due to slowness in decline of food prices. The primary reason for moderation is sedate food prices and fall in fuel inflation. The RBI may now have to revisit the stance taken last month regarding rate cut, citing concerns regarding rise in inflation.
The Food Inflation remained almost flat as it just fell by -0.29% as compared to -2.12% in June,’17. Whereas, Crude and Power Inflation spiked to 4.86% as compared to 4.84% fall in June,’17.
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.
Wholesale Inflation rose to 1.88% in July,’17, for the 1st time in 5 months. Primarily, due to rise in prices of food commodities as Food Inflation rose to 2.12% from 1.25% fall in the previous month. Crude Inflation fell by 4.74% as compared to 5.28% in the previous month, Manufacturing Sector rose by 2.18 during the same period. The Food Index as sub group in Primary Articles and Manufactured Products slowed down to 2.15% from 3.47% in April.
The new index provides Primary Articles with 22.62% weightage, 64.23% for manufactured products and power and fuel with 13.15%. Appreciation of Rupees against the Dollar has also helped the Wholesale Inflation to cool off.
IIP contracted by 0.1% in June,’17 as compared to the rise of 2.80% (revised) in the previous month, according to the new data set. 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.
Manufacturing sector fell to 0.4%, while Electricity fell by 2.1% while Mining contracted by 0.4%.
15 out of 23 industry group in manufacturing sector have witnessed negative growth.
Manufacturing Sector constitutes 77.6% of the new IIP index while 14.4% is allotted to the Mining sector and 8% to Electricity.
Inflation remaining well below the mid-term target of 4% is a relief for RBI. But the slowness in economy is evident with the Industry output contracting.
Goods and Service Tax (GST) has been introduced and the impact on the inflation is being felt.
Industrial Output is expected to improve with the Industries coming out of the demonetization impact and looking to be on track on growth track.
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.
Stronger Rupee against the Dollar is also expected to impact the Inflation and Foreign Trade.
Global markets is extremely cautious and closely observing the developments in US and other major Global markets.