Retail Inflation In Check, Industry Output Contracts, RBI Rate Cut On The Cards

Posted By Amritesh
On March 15th, 2016
Comments: 13 responses

WHOLESALE PRICE INDEX

Wholesale Price Index (WPI) for the month of February, 2016 continued with the deflationary trend, as inflation eased marginally to (-)0.91% as compared to (-)0.90% in the previous month. Inflation has stayed negative consecutively for the past 16 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 and Food Prices which ensured that wholesale inflation remained negative. The food inflation dropped to 3.35% as compared to 6.02% in the previous month. The fuel and power segment, inflation declined by (-)6.4% as compared to (-)9.20% 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. On month to month basis Primary articles rose by 1.58% and Manufactured products grew by 0.3%. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.

The Inflation figure for December has been revised to (-)1.06% from provisional estimate of (-)0.73%.

CONSUMER PRICE INDEX

Consumer Price Index (CPI) continuous rise for past 6 months has been checked, as it fell to 3 month low of 5.18% in the month of February, 2016 as compared to 5.69% in the previous month. The food inflation fell to 5.30% from 6.85% in the previous month. Consumer Food Inflation has 47% weightage in CPI Index.

RBI will now contemplate about cutting the repo rate when they meet to discuss monetary policy on 5^th April’16. As they are well below the 6% inflation target set by it previously.

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) remained negative for the 3^rdconsecutive month as it contracted by 1.5% in January,2016 as compared to slide of 1.3% in December,2015. It is the second consecutive month that the IIP has contracted.

The slide is mainly contributed to decline in the Manufacturing Sector, which fell by 2.8%, whereas Mining sector grew by 1.2%, while the Consumer Non Durables sector fell by 3.1% while Consumer Durables grew by 5.8%. However, Capital Goods recorded a massive fall as it witnessed a contraction of 20.4 % which shows the overall industry sentiment.

The growth of factory output is essential for the economy and slowing down does not 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.

OUTLOOK

RBI has set a target of maintaining CPI below 6% and seems to have done well to achieve it. RBI is expected to announce a rate cut as Inflation is within its limit and Industry needs massive boost as it is struggling for a while now.
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 15 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.

www.amritfinaa.blogspot.com

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Retail Inflation In Check, Industry Output Contracts, RBI Rate Cut On The Cards

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