Inflation Drops while Industry Output Grows….!!!!!!
WHOLESALE PRICE INDEX
Wholesale Price Index (WPI) for the month of March, 2016 continued with the deflationary trend, with a marginal drop to (-)0.85% as compared to (-)0.91% in the previous month. Inflation has stayed negative consecutively for the past 17 months. This is the leanest period observed since the WPI Index was launched in 2005. The fall in WPI inflation is mainly contributed due to slide in Crude Prices which ensured that wholesale inflation remained negative. The food inflation rose marginally to 3.73% as compared to 3.35% in the previous month. The fuel and power segment, inflation declined by (-)8.3% as compared to (-)6.4% in the previous month. Wholesale Inflation takes into account the prices paid by the manufacturers on the goods imported and used as inputs. The main reason behind the WPI remaining in the negative is the continuous slide in Crude prices in the International Market and weak demand. However, any substantial rise in Food Inflation may become a cause of concern in the future. However, the recent prediction by Meteorology Department of good rains this year holds out hope for the economy as a whole. On month to month basis Primary articles rose by 2.13% and Manufactured products fell by (-)0.13%. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.
The Inflation figure for January,’16 has been revised to (-)1.07% from provisional estimate of (-)0.90%.
CONSUMER PRICE INDEX
Consumer Price Index (CPI) fell to a six month low in March, ‘16 as it stood at 4.83% as compared to 5.26% (revised) in the previous month. The last time Consumer Inflation fell below the current level was in September,’15 when it stood at 4.41%. The slide was largely due to softening of food inflation, which fell to 5.21% from 5.30% in the previous month. Consumer Food Inflation has 47% weightage in CPI Index. The forecast for good rains will help to keep the inflation in check.
RBI has already cut down rates by 25 basis points earlier in the month. But Analysts do feel that further cuts may be announced pretty soon as economic scenario look favorable. However, the Global Crude prices are showing reverse trend and with demand picking up, it may have a serious impact on the inflationary rates.
With CPI in check, 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.
INDEX OF INDUSTRIAL PRODUCTION (IIP)
Index of Industrial Production (IIP) grew by 2% in the month of February,’16 as compared to contraction of 1.5% witnessed in January,2016. IIP figures have reported growth after 3 consecutive months of contraction.
The growth is mainly contributed by acceleration in Manufacturing, Mining and Electricity Sector. As manufacturing sector grew by 0.7%, whereas Mining sector grew by 5%, while the Electricity Sector grew by 9.6%. However, the Capital Goods and Consumer Non Durables Sector continued to be sluggish.
The growth of factory output is essential for the economy. Industrial growth is mandatory to generate jobs for individuals, however the turbulent European Crisis and Chinese downturn is a cause of concern and one needs to be cautious going forward. The Indian Economy however seems to be on the right track and holds good for the future.
As I had mentioned previously, growth in Manufacturing Sector is the only way forward for the economy. Thus the rise in the core sectors along with few others will definitely help the Economy to move forward. Manufacturing Output also constitutes 75% of IIP data.
RBI has set a target of maintaining CPI below 6% and seems to have done well to achieve it. RBI has announced a rate cut as Inflation is within its limit and Industry needs massive boost as it is struggling for a while now. Further rate cut is also a possibility in the near future.
RBI wants to ease Consumer Inflation to 4% which for the moment seems to be an ambitious target, which will be tough to meet. However, if inflation remains within 5%-5.5%, it should be considered as a fairly commendable job.
The continuing deflationary trend also does not augur too well for the economy as it indicates weak demand, which in turn slows the production thereby leading to poor wages and lack of job creation.
Exports are on decline for quite some time now which will impact India’s earnings. The fall is mainly contributed to poor global demand and softening of crude prices. Global Economic slowdown has not helped India’s cause either. Exports are on decline on 16 months consecutively.
Global Sentiments are pretty reserved at this point of time with China slowing down. The major challenge at this point of time is to ensure economic stability and safeguard the Interests of developed and developing economies of the world.
India is emerging as the most preferred destination for the Investors and promises to bring in more and more investments which augurs well for the economy as well the as the population.