Inflation, IIP Figures & Economy

Thursday, December 5th, 2019 Amritesh one response 20 Views

Consumer Inflation rose to 16 month high in October,’19 primarily due to rise in prices of food items, while Wholesale Inflation took a divergent path as it fell to 40 month low. Retail Inflation surged above the mid-term target of 4% set previously, RBI must be monitoring the scenario closely. Retail Inflation for FY 2019-20 was earlier estimated 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 observe 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 touched 16 month high of 4.62% in October, 2019, compared to 3.99% in the previous month. CPI was forecasted to remain below the mid-term target in the current Financial Year. The Food Inflation surged to 7.89% in October,’19 as compared to 5.11% in September,’19. Among food items, Inflation in vegetables and protein rich products was significantly high. Crude Fuel and Power Inflation softened further to (-) 2.02% from (-) 2.18% in the previous month.

Core Retail Inflation for non food, non fuel items slowed to 3.47% in October,’19. The lowest observed in 94 months.

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 fell to 0.16 % in October,’19, when compared to previous month. The lowest recorded in last 40 months. Food Inflation rose to 9.80% from 7.47% in the previous month. Crude prices declined further to (-) 8.3% when compared (-) 7.05% to the previous month. Manufacturing sector remained muted as it contracted by (-) 0.84%, Primary Articles grew by 6.41% during the same period.

Core Inflation for October,’19 slipped further as into negative to (-) 1.6% as compared to (-) 1.1% 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) dipped by (-) 4.3% in September,’19 as compared to 4.6% growth witnessed in the September,’18, steepest contraction observed in 8 years. 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 (-) 2.6% while Mining fell sharply by (-) 8.5%, Manufacturing Sector declined by (-) 3.9% when compared to corresponding month of the last fiscal. Capital Goods contracted by 20.7%, while Consumer Durables witnessed negative growth of 9.9% during the same period. The Industrial Output is expected to expand in the coming months with Government introducing reforms to boost the economy.

17 out of 23 industry group in manufacturing sector have witnessed negative growth in September,’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’s may once again review the repo rate in the next meet following slow Industrial growth and weak demand scenario in the economy.

Low 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.

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