Inflation, IIP Figures & Economy

Monday, December 30th, 2019 Amritesh one response 161 Views

Consumer Inflation observed steepest rise in over 3 years in November,’19 primarily due to rise in prices of food items, while Wholesale Inflation recorded a 3 month high as per the latest data. Retail Inflation had surged above the mid-term target of 4% in the previous month and continued the trend in November as well. Retail Inflation for FY 2019-20 was estimated at the beginning of the Financial Year at 2.9% in Q1, 3% in Q2, 3.5% in Q3 & 3.8% in the last quarter. Monetary Policy Committee (MPC) has retained the repo rate at 5.15%, in the recently concluded policy meet. This is the lowest since March, 2010. The recent tax reforms are expected to have a positive impact on the economy and boost industry output.

Income Tax Slab Rates For Financial Year 2019-20

RBI may closely monitor the inflationary trends and industrial output figures before any major announcement in the next policy meet. MPC is hopeful of inflation remaining within the target range. Repo rate is also expected to be reviewed in the next policy meet. Monetary Policy remains “Accommodative” for the current period.

Retail Inflation

Retail Inflation witnessed sharp rise of 5.54% in November, 2019, compared to 3.99% in the previous month, highest in 41 months. CPI was forecasted to remain below the mid-term target in the current Financial Year. The Food Inflation surged to 10.01% in November,’19 as compared to 7.89% in September,’19. Among food items, Inflation in vegetables, onion & protein rich products were significantly high. Crude Fuel and Power Inflation remained soft at (-) 1.93% from (-) 2.02% in the previous month.

Core Retail Inflation for non food, non fuel items remained at 3.5% in November,’19.

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. CPI stability is crucial for the economy.

Wholesale Inflation

WPI rose to 0.58% in November,’19, when compared to previous month, primarily due to inflation in primary food articles touching 71 month high. Food Inflation rose to 11.01% from 9.80% in the previous month. Crude Inflation remained in negative at (-) 7.32% as compared to (-) 8.3% in the previous month. Manufacturing sector remained muted at (-) 0.84%, Primary Articles grew by 7.7% during the same period.

Core Inflation for November,’19 slipped further as into negative to (-) 1.9% as compared to (-) 1.6% in the previous month.

WPI for August,’19 revised to 1.17% from 1.08%.

The new index provides Primary Articles with 22.62% weightage, 64.23% for manufactured products and power and fuel with 13.15%.

Industrial Output

Index of Industrial Production (IIP) contracted by 3.8% in October,’19 marginally better than previous month. Moderation in Industry output is attributed to sluggish growth recorded in Manufacturing & Mining sector. The second quarter of FY 2019-20 (July-September) observed contraction of 0.3%. 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 Sector slid to (-) 12.2% while Mining fell sharply by (-) 8%, Manufacturing Sector declined by (-) 2.1% when compared to previous month. Capital Goods contracted by 21.9%, while Consumer Durables witnessed contraction of 18% during the same period. The Industrial Output is expected to expand in the coming months with Government introducing reforms to boost the economy.

18 out of 23 industry group in manufacturing sector have witnessed negative growth in October,’19.

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

Outlook

MPC may once again review the repo rate in the next meet following slow Industrial growth and weak demand scenario in the economy.

Stagnant Wholesale Inflation may be good for the end consumers but it also highlights low demand in the economy. Low consumption impacts the pricing power of producers, restricting influx of fresh investments and job opportunities.

Food Inflation is expected to continue the upward trend for some more time.

Inflation is expected to moderate with base effect adjustment.

Growth in Industrial output is essential for the economy, primarily in the Manufacturing sector.

CPI above the set target is a concern for the RBI.

Goods and Service Tax (GST) amendments are expected to have a positive impact on the economy. Businesses have responded to the reforms in indirect taxation. Higher Collection of Tax will be beneficial in bringing down the fiscal deficit.

Recent tax reforms are expected to boost economy but more investment and opportunities need to be generated to strengthen the economy.

Recent announcements providing tax relief to Foreign Portfolio Investors (FPI) and relaxation in FDI norms for single brand retail is expected to have a positive impact on the economy.

Slow GDP growth is a worrying factor for the Government. However, recent policy changes are expected to have a positive impact on the Economy.

Focus should also be on generation of jobs for the Young India, boost in jobs creation would be beneficial for the economy.

This article is for informational purpose only, based on data collected from open sources. Readers are advised to research further to have detailed knowledge on the topic.

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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