Economy: Inflation, IIP Figures and More!!!
Inflation continued to rise as per the latest data released for the previous month. The rise is attributed to spike in core inflation. Last week, RBI hiked the repo rate for the first time in 4 years to 6.25%. Monetary Policy Committee (MPC) seems to be justified in raising the repo rates to keep the inflation in check, as the inflationary pressure is expected to continue in the coming months.
MPC has maintained the policy stance as “neutral”, implying it could go either way based on the economic scenario. The rising Crude prices, hike in Minimum Support Prices (MSP) for kharif crop and revision in House Rent Allowance (HRA) for Government employees could impact the inflation. However, Good Monsoon with evenly distributed rainfall will help in keeping the inflation under control.
Retail Inflation rose to 4.87% in May, 2018, as compared to 4.58% in the previous month, to be at 4 month high. CPI is expected to continue with the uptrend in the coming months. RBI has revised the inflation estimate for current FY, to be in the range of 4.8%-4.9% in the first half and 4.5%-4.6% for the latter half of fiscal year..
The Food Inflation rose to 3.1% in May,’18 as compared to 2.80% in April,’18. Crude Fuel and Power Inflation stood at 5.80% when compared to 5.24% in the previous month. The rise in CPI is mainly attributed to hike in Core Inflation (Non Food and Non Fuel component) rose to 6.17% as against 5.8% in the preceding month, to be at 45 months high.
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 rose considerably to 4.43% in May,’18, from 3.18% in the previous month. This is the highest observed in last 14 months. The rise is contributed to the hike in prices of Food items in Primary as well as Manufacturing sector group. Food Inflation rose to 1.60% from 0.67% in the previous month. Even, Crude prices rose sharply to 11.22% as compared to 7.85% in the previous month. Whereas, Manufacturing sector rose by 3.73% during the same period. Primary Articles too rose to 3.16% as compared to 1.4% 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) gained momentum in April,’18 as it grew 4.9% as compared to 4.6% (revised) in March,’18, according to the new dataset. The growth was largely attributed to improved performance in the Manufacturing and Mining 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 2.1% while Mining grew by 5.1%, whereas the Manufacturing Sector grew 5.2% during the same period. Capital Goods and Consumer Durables sector also witnessed growth during the same period.
16 out of 23 industry group in manufacturing sector have witnessed positive growth in April,’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 hovering above the medium 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) introduction and the impact on the inflation need to be evaluated. The revision of GST rates is expected to impact the Inflation positively.
RBI may look to hike the repo rates again in the near future based on the situation. 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.