Economy: Inflation, IIP Figures and More!!!

Saturday, May 19th, 2018 Amritesh one response

Inflation

Inflation rose marginally as per the latest data released for the previous month. The rise is attributed to spike in Core Inflation (Non Food & Non Fuel). Thereby, repo rate cut seems unlikely in the near term. RBI is expected to observe the scenario for some time before deciding on the repo rates.

Introduction of GST may have some impact on the economy as Business houses are still in the initial phases of implementation. However, the decision to slash GST rates on many of the items has helped to ease of inflationary pressure as per the data. Thus, the chance of further cut in the repo rates depends on the inflationary trends in the coming months. The forecast for good monsoon is also a relief for the economy.

RBI will hope that the inflation remains under control in the coming months.

Retail Inflation

Retail Inflation rose marginally to 4.58% in April, 2018, as compared to 4.28% in the previous month. CPI had been falling consecutively for the last 3 months paving hope for rate cut which now seems unlikely anytime soon. The current trend is line with the RBI estimate for the quarter ending March. RBI has revised the inflation estimate for current FY, to be in the range of 4.7%-5.1% during April to September and 4.5%-4.6% for the latter half of the fiscal year. CPI (Consumer Price Index) had been moderating since December,’17.

The Food Inflation moderated to 2.80% in April,’18 as compared to 2.81% in March,’18. Crude Fuel and Power Inflation stood at 5.24% when compared to 5.7% in the previous month. The rise in CPI is mainly attributed to hike in Core Inflation (Non Food and Non Fuel component) as it rose to 6% which is 34 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.

Wholesale Inflation

WPI rose considerably to 3.18% in April,’18, from 2.47% in the previous month. This is the highest observed in last 3 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 0.67% from (-)0.07% in the previous month. Even, Crude prices rose by 0.9% as compared to 0.01% in the previous month. Whereas, Manufacturing rose by 0.3% during the same period. Primary Articles too rose by 1.4% as compared to 0.5% 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%.

February WPI figures have been revised upwards to 2.74% from provisional estimate of 2.48%.

Industrial Output

Index of Industrial Production (IIP) figures moderated in March,’18 to 4.4% as compared to 7% (revised) growth in February,’18, according to the new dataset. Following sustained growth observed in last 4 months. The growth was largely attributed to improved performance in the Manufacturing Sector. Industrial Growth observed in March,’18 is the lowest since October,’17. 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 5.9% while Mining grew by 2.8%, while the Manufacturing Sector stood at 4.4% during the same period. Capital Goods too observed slowness whereas, the Consumer Durables recorded decent growth which hints at increase in consumption.

11 out of 23 industry group in manufacturing sector have witnessed positive growth in January,’18.

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

Outlook

Retail Inflation is expected to remain within the estimates.

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) has been introduced and the impact on the inflation needs to be evaluated. The revision of GST rates has helped the Inflation to moderate.

RBI has achieved its primary target of keeping the inflation at manageable level. 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.

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Amritesh is an experienced professional in the field of HR, Finance and Compliance. He is currently working in the IT Industry with an US based firm. He took up Blogging as a hobby which eventually turned into passion. He primarily focuses on topics related to Personal Finance, HR, Compliance and Technology.

All the opinions/suggestions/views expressed on this blog are just for sharing information. Readers are requested to consult their respective financial advisers and experts before taking any decision. Views shared through post or comments are personal opinion meant for reference of the readers. These should not be considered as Investment Advice or Legal Opinion. The Blog or the Author does not take any responsibility regarding any such action taken by any Individual.
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Thanks for sharing Article.Very useful and in informative.Thanks