Inflation, IIP Figures & Economy
Consumer Inflation observed steepest rise in 68 months in January, 2020 primarily due to rise in prices of food items & crude, while Wholesale Inflation recorded 9 month high as per the latest data. Retail Inflation has surged above the mid-term target of 4% set by the RBI with upper tolerance level of 6% and lower limit of 2% for the period till 31st March, 2021. Retail Inflation for last quarter of FY 2019-20 has been revised significantly from 4.7%-5.1% to 6.5%. Monetary Policy Committee (MPC) has retained the repo rate at 5.15%, in the bimonthly 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.
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 witnessed sharp rise to 7.59% in January, 2020, compared to 7.35% in the previous month, highest since May, 2014. CPI was expected to remain below the mid-term target in the current Financial Year. The Food Inflation eased to 13.63% in January, 2020 as compared to 14.19% in December,’19. Among food items, Inflation in vegetables rose to 50.19%, onion & protein rich products also surged during the period. Crude Fuel and Power Inflation rose significantly 3.66% from 0.7% in the previous month.
Core Retail Inflation for non food, non fuel items rose to 4.2% in January, 2020.
Consumer Food Inflation has 45.86% weightage in CPI Index. Consumer Price Index, ascertains the increase in retail prices of the commodities, reflects the true impact of inflation on Common People. CPI stability is crucial for the economy.
WPI rose to 3.10% in January, 2020, when compared to previous month, the highest in 9 months. Food Inflation rose to 13.12% from 11.01% in the previous month. Crude Inflation spiked significantly at 3.42% as compared to (-) 1.46% in the previous month. Manufacturing sector rose to 0.34%, Primary Articles declined to 10% during the same period.
Core Inflation for January, 2020 rose to (-) 1% as compared to (-) 1.5% 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%.
Index of Industrial Production (IIP) witnessed a contraction as per the latest data. The IIP contracted 0.3% in December’19 as compared to 1.82% growth recorded in November,’19. Contraction in Manufacturing and Electricity Sector adversely impacted the Industry Output. 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 contracted by 0.1% while Mining grew by 5.4%, Manufacturing Sector contracted by 1.2% when compared to previous month. Capital Goods contracted by 18.2%, while Consumer Durables witnessed contraction of 6.7% during the same period. The Industrial Output is expected to expand in the coming months with Government introducing reforms to boost the economy.
16 out of 23 industry group in manufacturing sector have witnessed positive growth in December,’19.
Manufacturing Sector constitutes 77.6% of the new IIP index while 14.4% is allocated to the Mining sector and 8% to Electricity.
MPC may once again review the repo rate in the next meet following slow Industrial growth and weak demand scenario in the economy.
Retail Inflation above the mid-term target is a concern for the RBI.
Food Inflation is expected to continue the upward trend for some more time.
Inflation is expected to moderate with base effect adjustment.
GDP is forecasted to grow at 5% in the current fiscal is also a concern for the economy.
Growth in Industrial output is essential for the economy, primarily in the Manufacturing sector.
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.