IIP CONTRACTS, CPI SLOWS

about 6 days ago
No image

 

The festivities are almost over… that’s what the IIP for Nov indicates.

In Oct, the IIP surprised everyone, coming in at 3.6% and Nov, it was back into the negative at -1.9% and this despite the first fifteen days of the month seeing demand on account if Diwali. So, what this indicates is that growth sustenance as we had always worried about, might disappoint. Exports were down in Nov and that too contributed to lower IIP despite PMI showing improvement; the same is expected to happen for Dec macro numbers too.

What we can say is that though expansion will continue, momentum will stagger. This is also what we understand from another macro data. CMIE, based on employment numbers which it tracks, indicated that economic recovery has either stopped in the third quarter or stopped showing up in employment. CMIE stated that though there was a sharp ‘V’ shaped recovery in employment expansion but started slowing down from July and stagnated before complete recovery.

But more than the IIP, CPI for Dec was more eagerly awaited and that was a pleasant surprise, it came in at 4.59% v/s 6.93%. It would be too early to say that this will make RBI happy as this could be a temporary reprieve. Metal prices, as such have been on the surge and today there was news of the FMCG companies hiking prices due to increasing raw material prices. Automobile prices have also gone up and overall there has been a price hike as commodity prices rise.

This fall in the CPI was mainly on account of the fall in food inflation, which was down from 9.43% to 3.4% (MoM), led by a more than 10% contraction in vegetable prices.

Internals of CPI: (MoM)

  • Vegetable  -10.41% v/s 15.63%
  • Pulses  15.98% v/s 17.91%
  • Clothing & footwear 3.49% v/s 3.3%
  • Housing 3.21% v/s 3.19%
  • Fuel & light 2.99% v/s 1.9%

Though this inflation rate is within Monetary Policy Committee’s target range of 4 (+/-2)% for the first time since March 2020, it is unlikely that the RBI will change its stance in its Feb policy. Though lower inflation gives RBI more room to be accommodative, but RBI will logically want to wait and see if this CPI is sustainable. So, for some time more, RBI’s ‘monetary accommodation’ will continue!

Popular Comments