Economy: Inflation, IIP Figures and More!!!
Inflation figures for Retail and Wholesale expanded as per the latest data released for the previous month. Retail Inflation rose to 4-month high, whereas Wholesale Inflation also surged during the same period. The rise is attributed to hike in Food & Crude prices. Monetary Policy Committee (MPC) recently decided to reduce the repo rate by 25 basis points to 6.25% in the sixth bi-monthly policy meeting, as the Retail Inflation remained below the mid-term target. MPC has revised the retail inflation estimate to 2.8% for last quarter of Financial Year 2018-19, whereas inflation for 1st half of 2019-2020 is projected to remain in the range of 3.2%-3.4% and around 3.9% in the 3rd Quarter of 2019-2020.
Easing of Inflation is a welcome relief for the policy makers. MPC is hopeful of inflation remaining within the target range. Monetary Policy stance has also been changed from “Calibrated Tightening” to “Neutral” for the current period. Coming months is crucial for the economy, especially with elections due during the summer season.
Retail Inflation soared to 4 month high of 2.57% in February, 2019, compared to 1.97% (revised) in the previous month. CPI is expected to remain below the mid-term target for the last quarter of FY 2018-19. The Food Inflation contracted (-) 0.66% in February,’19 as compared to (-) 2.17% in January,’19. Crude Fuel and Power Inflation eased to 1.24% when compared to 2.20% in the previous month.
Core Inflation for non food, non fuel items remained stagnant at 5.4% when compared to 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 rose to 2.93% in February,’19, from 10-month low of 2.76% in the previous month. The rise is contributed to the increase in Food & Crude prices. Food Inflation rose to 3.29% from 1.84% in the previous month. Crude prices increased to 2.23% when compared to 1.58% in the previous month. Manufacturing sector stood at 2.25% whereas, Primary Articles rose to 4.84% during the same period.
Core Inflation for February,’19 declined to 2.4% as compared to 2.9% in the previous month.
WPI for month for December,’18 stood at 3.46% (revised) as compared to provisional figure of 3.8%.
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) slipped to 1.7% in January,’19 as compared to 2.6% (revised) recorded in December,’18, according to the new dataset. The slowdown is attributed to significant contraction observed in the Manufacturing & Mining 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 0.8% while Mining accelerated by 3.9%, whereas the Manufacturing Sector moderated to 1.3% during the same period. Capital Goods declined by 3.2%, while Consumer Durables grew by 1.8% respectively during the same period. The Industrial Output is expected to expand in the coming months.
12 out of 23 industry group in manufacturing sector have witnessed positive growth in December,’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’s decision to cut the repo rate is expected to boost investment which is encouraging for the Industry.
Growth in Industrial output is essential for the economy, primarily in the Manufacturing sector.
CPI below the set target is a relief for the RBI.
Moderation in Crude Prices and stability in Rupee/Dollar index is favorable for the economy.
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.
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 sharing personal views only. Readers are advised to research further to have more clarity on the topic.