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July IIP came in at 6.6% v/s 6.9% (MoM) and the retail inflation or CPI for August was at 3.69% v/s 4.17% (MoM) – this is a 10-month low. So inflation cools down and growth was steady.. that in short is the story of today.

Yet, somehow these numbers do not give us a sense of comfort or longevity as currently all attention is on the rising fuel price and falling rupee. Thus when the markets open for trading on Friday, these inflation or IIP numbers will not hold any significance as all attention will be on actions to be taken by the Govt to anchor the depreciating rupee. There is a meeting scheduled over the weekend and that is what will decide the moods. These numbers of today will just disappear in a wink.

But for those of us who look beyond the market reaction, what we see is that IIP came in lower than most estimates. Manufacturing was lacklustre and capital goods was kind of a shocker. Mining and electricity was also down. What really helped was consumer non-durables and durables otherwise across the board it was down on month-on-month.  The lower base effect is also at play despite which the numbers look poor. Maybe we will have one more month of good numbers but September month IIP could come lower as the impact of the rupee and fuel price is sure to come in then.

A quick look at the CPI internals: (MoM)

  • Food at 0.29% v/s 1.37%
  • Fuel & light at 8.47% v/s 7.96%
  • Housing at 7.59% v/s 8.3%
  • Vegetable at  -7% v/s -2.2%
  • Clothing & footwear at 4.88% v/s 5.28%
  • Cereals at 2.98% v/s 2.9%
  • Pulses at  -7.76% v/s 8.91%

Obviously, the one big question in everyone’s mind is whether RBI will react with a rate hike. Inflation is benign but the falling rupee and escalating fuel prices could force the RBI to react. The RBI meet is scheduled for Oct and at that time, most expect a 0.25% rate hike.

Coming to the IIP, what we see is that, in terms of industries, twenty out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of July 2018 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of furniture’ has shown the highest positive growth of 42.7 percent followed by 30.8 percent in ‘Manufacture of computer, electronic and optical products’ and 28.4 percent in ‘Manufacture of tobacco products’. On the other hand, the industry group ‘Manufacture of paper and paper products’ and ‘Printing and reproduction of recorded media’ have shown the highest negative growth of (-) 2.7 percent followed by (-) 0.9 percent in ‘Manufacture of machinery and equipment.’

The high positive growth contributors were electricity, diesel, scientific instruments/apparatus for drawing, calculating and measurement, mining and Vaccine for veterinary medicine.

On the other hand, the high negative growth contributors were Copper bars, rods & wire rods, Separators including decanter centrifuge, Pig iron, Copper electrodes and Paper of all kinds excluding newsprint.

Well, these IIP and CPI numbers were very much in line and as we said earlier, the market is looking much ahead into the future while dealing with the clear and present danger of falling rupee. Thus let’s put these numbers behind us and get ready to welcome Lord Ganesha and pray that He wards off all the obstacles.

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