IIP CONTRACTS, CPI EXPANDS

about 7 months ago
No image

January IIP came in at (-)1.6%, disappointing everyone as most analysts had expected this month to show a growth of 1 to 1.2%. This all the more disappointing as IIP had come in at 1% in Dec. So, the green shoots what we thought we saw last month, is not really so green this month.

CPI was at 5.03% v/s 4.06% (MoM), adding on to the feeling of despondency. This does indicate that we are going to be seeing a consistently higher inflation in the coming months, what will fuel prices being where they are, which in turn will fuel all-round inflation. Thus for the next 6 to 8 months, we need to get used to this high inflation.

Internals of CPI: (MoM)

  • Vegetables (-) 6.27 v/s (-)15.84%
  • Fuel & Light 3.53% v/s 3.87%
  • Clothing & Footwear 4.31% v/s 3.82%
  • Pulses 12.54% v/s 13.39%
  • Housing 3.23% v/s 3.25%

One way and probably the only way to look at this data is that this is all old news – IIP looks at data which is much older and that does not really mean, it gives us any meaningful insight into what the future holds.

But in that context, most of the economic data is always old as it gives us past month or past quarter macro data. Yet, that’s crucial as it helps us read into what exactly went wrong, based on which we can draw our own inferences for the future. So, what we can say is that we are not yet out of the woods, the recovery that we saw last month is not really here.

The rising inflation and lower growth is worrisome. This indicates that some sectors did show growth but was not sustainable and probably was on account of a lower base effect. Maybe this is consolidation happening but the rising hydra-headed inflation is sure to put pressure on India Inc’s margins as the industry has still not got the pricing power back. That demand will come in, only on the back of receding Covid numbers as vaccination jumps up; till then we are sure to see pressure on the IIP front.

CPI, unless the Center and the state decide to cut down the taxes, well, fuel will keep prices on fire, burning a hole in the pockets of the common man, which in turn will scald and maim growth.

Popular Comments