Inflation, IIP Figures & Economy

• Posted By Amritesh
• On October 26th, 2020
• Comments: 5 responses

Inflation continued its upward trend in September, 2020 as per the latest figures. Wholesale Inflation rose to seven month high while Retail Inflation continued to soar above the tolerance level set by the Reserve Bank of India. Increase in prices of Food items has led to the surge in inflation. The festive season along with disruption in supply chain due to pandemic signals the trend to continue in the short term. Global Economy is also struggling due to the on-going battle with Covid-19.

Income Tax Slab Rates For Financial Year 2020-21

RBI has ruled out any cut in repo rate as of now, but has retained the accommodative stance as of now. The reason being the rise in inflation is largely due to increase in prices of food items and is expected to settle down once the supply chain operates in full capacity.

Retail Inflation

Consumer Price Index (CPI) rose to 7.34% in September, 2020, highest since January 2020. The retail inflation stood at 6.69% in the month of August, 2020. The surge in inflation above the tolerance level has quashed hope of any further rate cuts.

Food Inflation was the primary reason for rise inflation. Ever since the lockdown was imposed to curb the spread of Covid, the supply of food items has been disrupted. The easing of lockdown restrictions has not helped much as virus is spreading rapidly and business is yet to resume in full swing.

Food Inflation rose to 10.68% in September, 2020 from 9.05% in August, 2020. Vegetables and Potato prices soared among Food items to 20.73% from 11.4% in August. Fuel prices moderated to 2.87% from 3.1% in August, 2020.

Consumer Food Inflation has 45.86% weightage in CPI Index. Consumer Price Index, ascertains the increase in retail prices of the commodities, reflects the true impact of inflation on Common People. CPI stability is crucial for the economy.

Wholesale Inflation

Wholesale Price Index (WPI) rose to 1.32% in September, 2020 as compared to 0.16% in August, 2020. WPI remained negative for four consecutive months before turning positive in August.

The rise in WPI is mainly due to increase in prices of food items. Food Inflation rose to 8.17% as compared to 3.84% in the previous month. Potato and Vegetables witnessed sharp increase in prices during the concerned period. Crude prices declined significantly by (-) 9.54% while Manufactured Items rose marginally by 1.61%.

Core inflation rose to 16 month high of 1% in September, 2020.

The new index provides Primary Articles with 22.62% weightage, 64.23% for manufactured products and power and fuel with 13.15%.

Industrial Output

Industrial Output contracted by 8% in August, 2020. The Index of Industrial Production (IIP) has contracted by 1.4 % in the corresponding month of the previous year and by 10.24% in July this year.

It must be noted that current figures have been adversely impacted by the lockdown imposed due to Covid-19 situation. The economy is expected to perform well once the restrictions are completely lifted and normalcy returns.

As per the data, Manufacturing Output fell by 8.6%, mining & power sectors fell by 9.8% and 1.8% respectively, during the same period.

Manufacturing Sector constitutes 77.6% of the new IIP index while 14.4% is allocated to the Mining sector and 8% to Electricity.

Outlook

Covid-19 has not only impacted inflationary trend but also the Industrial Output during the current period.

India needs robust economy revival plan to come out of the current scenario.

RBI will closely monitor the Covid-19 scenario before coming out with any fresh plans for revival of the economy.

Creation of Jobs and economy growth will be the key point of concern for the Government.

US Election will be observed keenly in India, as it could potentially impact the World Economy.

This article is for informational purpose only, based on data collected from open sources. Readers are advised to research further to have detailed knowledge on the topic.