Economy: Inflation, IIP Figures and More!!!
Inflation moderated as per the latest data released for the previous month. The slowing down is attributed to moderation in food prices. The data is expected to raise hopes of rate cut in the future, RBI is expected to observe the scenario for some time before deciding on the repo rates.
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 has helped to ease of inflationary pressure as per the data. Thus, the chances of further cut in the repo rates seem possible in the near future.
RBI will hope that the inflation remains under control in the coming months.
Retail Inflation moderated to 4.44% in February, 2018, as compared to 5.07% in the previous month. Retail Inflation has fallen to the 4 months low which must be a relief for the policy makers. However, the current inflation figure is line with the RBI estimate for the quarter ending March. RBI has forecasted inflation to be in the range of 5.1%-5.6% during April to September and 4.5%-4.6% for the latter half of next fiscal year.
The Food Inflation moderated to 3.26% in February,’18 as compared to 4.7% in January,’17. Crude Fuel and Power Inflation stood at 6.8% when compared to the previous month. The slowness in retail inflation is mainly attributed to the fall in Food and Crude prices.
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 eased for the third consecutive month to 2.48% in February,’18, from 2.84% in the previous month. This is the slowest growth recorded in last 7 months. The slide is contributed to the fall in prices of Food items in Primary as well as Manufacturing sector group. Food Inflation fell to 0.07% from 1.65% in the previous month. Even, Crude prices eased to 3.81% as compared to 4.08% in the previous month, Manufacturing stood at 3.04% during the same period. Primary Articles eased to 0.79% as compared to 2.37% in the previous month.
The new index provides Primary Articles with 22.62% weightage, 64.23% for manufactured products and power and fuel with 13.15%.
Index of Industrial Production (IIP) figures raises hope of economy revival as January,’18 saw a growth of 7.5% as compared to 7.1% growth in December,’17, according to the new dataset. The growth is largely attributed to improved performance in the Manufacturing Sector. 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 7.6% while Mining was almost flat at 0.1%, the Manufacturing Sector recorded growth of 8.7% during the same period. Capital Goods and Consumer Durables also recorded decent growth which hints at increase in consumption.
16 out of 23 industry group in manufacturing sector have witnessed positive growth in January,’18.
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.
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.