Economy: Inflation, IIP Figures and More!!!
Inflation figures for Retail and Wholesale moderated as per the latest data released for the previous month, Retail Inflation slowed to 17 month low, whereas Wholesale Inflation was at 3 month low. The fall is attributed to cooling off of the Food & Crude prices. Monetary Policy Committee (MPC) may consider lowering the repo rates, if the inflation remains below the estimated level. MPC has revised the retail inflation estimate to 2.7% to 3.2% for 2nd half of Financial Year 2018-19, on account of normal monsoon and moderate food prices.
Moderation is a welcome relief for the policy makers. However, MPC has to keep a close watch on the Dollar-Rupee and Crude Price fluctuations. Coming months is crucial for the economy, especially with elections coming up during the summer season. Revision of GST rates is expected to further help in keeping the inflation rate at moderate levels.
Retail Inflation fell to 17 month low of 2.33% in November, 2018, compared to 3.38% in the previous month. CPI is expected to witness further slide in coming months. The Food Inflation contracted (-)2.61% in November,’18 as compared to 0.86% in October,’18. Crude Fuel and Power Inflation eased to 7.39% when compared to 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 revision in the monetary policy.
WPI fell to 4.64% in November,’18, from 5.28% in the previous month. The fall is contributed to the moderation in Food and Crude prices. Food Inflation contracted to (-)3.31% from (-)1.49% in the previous month. Crude prices despite remaining high, moderated to 16.28% when compared to 18.44% in the previous month. Manufacturing sector stood at 4.21% whereas, Primary Articles eased to 0.88% during the same period.
Core Inflation moderated to 4.8% from 5.1%.
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) rose to 11 months high of 8.1% in October,’18 as compared to 4.5% growth in September,’18, according to the new dataset. The growth is attributed to steady performance in Manufacturing and Electricity 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 is included 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 10.8% while Mining grew by 7%, whereas the Manufacturing Sector grew at 7.9% during the same period. Capital Goods and Consumer Durable sector also witnessed growth during the same period. The Industrial Output is expected to expand in the coming months.
21 out of 23 industry group in manufacturing sector have witnessed positive growth in October,’18.
Manufacturing Sector constitutes 77.6% of the new IIP index while 14.4% is allocated to the Mining sector and 8% to Electricity.
MPC will need to monitor the retail inflation, before taking a call on repo rates.
Retail Inflation below the set target is a relief for the RBI.
Fluctuation in Rupee value 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 house seem to have adapted to the changes in indirect taxation. Higher Collection of Tax will be beneficial in bringing down the fiscal deficit.
Focus should also be on generation of jobs for the Young India, boost in jobs creation would be beneficial for the economy.