WPI Deflation Eases, CPI on the High, Factory Output Declines
WHOLESALE PRICE INDEX
Wholesale Price Index (WPI) for the month of December, 2015 has shown signs of deflationary trend easing, as inflation rose to (-)0.73% as compared to (-)1.99% in the previous month. Inflation has stayed negative consecutively for the past 14 months. This is the leanest period observed since the WPI Index was launched in 2005. The nominal rise in WPI inflation is mainly contributed to rise in Food Inflation although the falling Crude Prices have helped to keep the wholesale inflation in negative. The food inflation rose steeply to 8.17% as compared to 5.20% in the previous month. The fuel and power segment, inflation declined by (-)9.15% as compared to (-)11.09% 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, the rising Food Prices is a cause of concern. On month to month basis Primary articles rose by 5.48% and Manufactured products fell by (-)1.36%. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.
The Inflation figure for October has been revised to (-)3.70% from provisional estimate of (-)3.81%.
CONSUMER PRICE INDEX
Consumer Price Index (CPI) is at 15 month high, as it rose consecutively for the 5th month to 5.61% in the month of December, 2015 as compared to 5.41% in the previous month. The food inflation rose to 6.30% from 6.07% in the previous month. Fuel and Light Inflation grew by 5.45%, while Health and Housing also rose above 5%. Consumer Food Inflation has 47% weightage in CPI Index.
RBI will now be cautious as it will struggle to keep the CPI under 6% as projected previously. With CPI on rise, 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) slowed during the period as it contracted by 3.2% in November,2015 as compared to growth of 9.8% in October,2015. It is the first time that IIP has contracted in 13 months.
The slide is mainly contributed to decline in the Manufacturing Sector, which fell by 4.4%, whereas Mining sector too contracted by 2.3%, while the Consumer Non Durables sector fell by 4.7%. However, Consumer Durables and Electricity sector grew by 12.5% and 0.7% during the same period.
The growth of factory output is essential for the economy and slowing down does augur well for it. 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% till January,2016 but will struggle to achieve it in my opinion.
- RBI wants to ease Consumer Inflation to 4% which for the moment seems to be an ambitious target, which will be tough to meet.
- 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 13 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.