Economy: Inflation, IIP Figures and More!!!
Inflation peaks as per the latest data released for the previous month. The rise is attributed to spike in core inflation. The surge in inflation may pave way for further hike in repo rates when Monetary Policy Committee (MPC) meets next. MPC had recently hiked the repo rate to by 25 basis points to 6.25%.
The pressure on Retail Inflation is expected to continue with rising Crude prices and hike in Minimum Support Prices (MSP) for Kharif Crops. However, Good Monsoon coupled with Base effect is expected to soften the trend. RBI will be keeping a close watch on the developments as the inflation has breached the projected estimates.
Retail Inflation rose to 5% in June, 2018, as compared to 4.87% in the previous month, to be at 5 month high. CPI is expected to moderate in the coming months. RBI had recently 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 inflation figure above the estimated level must be a cause of concern for the RBI.
The Food Inflation moderated to 2.9% in June,’18 as compared to 3.1% in May,’18. Crude Fuel and Power Inflation stood at 7.14% when compared to 5.80% in the previous month. The rise in CPI is mainly attributed to hike in Core Inflation (Non Food and Non Fuel component) rose to 6.4% as against 6.17% in the preceding month, to be at 46 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 5.77% in June,’18, from 4.43% in the previous month. This is the highest observed in last 54 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 1.8% from 1.6% in the previous month. Even, Crude prices rose sharply to 16.18% as compared to 11.22% in the previous month. Whereas, Manufacturing sector rose to 4.17% during the same period. Primary Articles too rose to 5.3% as compared to 3.16% 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) moderated in May,’18 as it grew 3.2% as compared to 4.8% (revised) in April,’18, according to the new dataset. This is the lowest in 7 months. The moderation was largely attributed to sedate performance in the 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 4.2% while Mining grew by 5.7%, whereas the Manufacturing Sector fell 2.8% during the same period. Capital Goods and Consumer Durables sector also witnessed growth during the same period.
13 out of 23 industry group in manufacturing sector have witnessed positive growth in May,’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 breaching the estimates is a concern for RBI.
Fall in valuation of Rupee against Dollar also needs to be monitored closely.
Growth in Industrial output is essential for the economy, primarily in the Manufacturing sector.
Goods and Service Tax (GST) implementation completes one year, slowly but surely business is adapting to the changes in indirect taxation.
RBI may look to hike the repo rates again in the near future based on the situation. However, RBI 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, boost in jobs creation would be beneficial for the economy.