Economy: Inflation, IIP Figures and More!!!
Inflation moderates as per the latest data released for the previous month, much to the relief of Monetary Policy Committee (MPC). The slide is attributed to fall in the food prices, favorable base effect has also helped the inflation to cool off. MPC had hiked the repo rates by 25 basis points to 6.50% in the previous month to combat the surging inflation. MPC estimates inflation to be around 4.6% for quarter ending September,’18 and 4.8% for the second half of Financial Year 2018-19.
Hike in Minimum Support Prices (MSP) for Kharif Crops, volatility in Global Markets along with rupee depreciation has contributed to the inflationary pressure. However, good monsoon season would be helpful in easing the pressure. RBI will be keeping a close watch on the developments as the inflation is hovering around the projected estimates.
Retail Inflation slowed to 3.69% in August, 2018, as compared to 4.17% in the previous month, to be at 11 month low. CPI is expected to moderate further in the coming months. The Food Inflation moderated to 0.29% in August,’18 as compared to 1.37% in June,’18. Crude Fuel and Power Inflation rose by 8.47% when compared to 7.96% in the previous month.
Consumer Food Inflation has 47% weightage in CPI Index. CPI falling, which is attributed to higher weightage being given to retail prices, 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 moderated to 4.53% in August,’18, from 5.09% in the previous month. Lowest observed since April,’18. The slide is contributed to the fall in prices of Food items in Primary as well as Manufacturing sector group. Food Inflation fell to (-) 4.04% from (-)2.16% in the previous month. Whereas, Crude prices slowed to 17.73% as compared to 18.10% in the previous month. Manufacturing sector rose to 4.43% during the same period. Primary Articles too slipped by (-)0.15% during the same period.
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) continued to show growth in July,’18 as it grew by 6.6% as compared to 6.8% in June,’18, according to the new dataset. The growth is attributed to the improved output in Manufacturing Sector. Industrial growth is essential for creation of jobs and economic growth. 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 6.7% while Mining grew by 3.7%, whereas the Manufacturing Sector grew by 7% during the same period. Capital Goods and Consumer Durables sector also witnessed growth during the same period.
22 out of 23 industry group in manufacturing sector have witnessed positive growth in June,’18.
Manufacturing Sector constitutes 77.6% of the new IIP index while 14.4% is allotted to the Mining sector and 8% to Electricity.
MPC will need to monitor the retail inflation trend closely in the coming months.
Fall in valuation of Rupee against Dollar is a cause of concern for RBI.
Growth in Industrial output is essential for the economy, primarily in the Manufacturing sector.
Goods and Service Tax (GST) implementation completes more than one year, business seems to have adapted to the changes in indirect taxation.
Focus should also be on generation of jobs for the Young India, boost in jobs creation would be beneficial for the economy.