SEPT IIP AND OCT CPI - AS PER EXPECTATIONS

By Ruma Dubey

Both IIP as well as CPI Inflation came in good. IIP for September came in at 2.5%, which was much better than expected and CPI Inflation for October was at 5.52%, which is stated to be the lowest since Jan’12 and this is attributed to lower food and fuel prices.

No, this does not mean that the back of inflation is broken. It’s a cyclical/seasonal fall in prices.

First the internals of the inflation numbers. Vegetable price inflation at for Oct came in at -1.45% v/s 8.59% in Sept. And for most housewives and the man on the street, this figure would be unacceptable. How could vegetables prices come in the negative? Go out into the market with a Rs.100 and you could come back with a bag which is not even one-fourth full. A bunch of leafy vegetables costs Rs.20, tomatoes are in the range of R.20-30 per kg, potatoes are today costlier than even tomatoes at Rs.35/kg. Fruits have gone beyond the reach of most Indians with apples and pears selling at Rs.180-200/kg. So in what context are we saying that inflation or rather vegetables prices have come down, that too in the negative? The mismatch between what is happening on the ground level and what we see as ‘statistics’ is so stark. The Central Statistics Organisation (CSO)says that price data are collected from selected towns by the Field Operations Division of NSSO and from selected villages by the Department of Posts. Price data are received through web portals being maintained by the National Informatics Centre. But then looking at what we are paying and what data they collect, surely there is a need to mend this mismatch or else, this very important data, which is what RBI bases its rate cuts or hikes on, just does not reflect the true picture.

The IIP numbers are more or less on the expected lines, with manufacturing and capital goods leading the growth. In fact this improvement in capital goods was expected and there has been a major intake of orders during Sept’14 (refer to previous article - https://www.sptulsian.com/article/82020/capital-goods-time-to-build-on-the-stocks- for more details). But the real shocker was the fall in consumer durables. In fact this sector, in this entire fiscal, has shown a positive growth only in May or else all the other months have shown a de-growth. Being a festive season, this de-growth in the sector does not bode too well.

As usual, based on these data, many sections of the media, which think they are the think tank for the RBI Governor, say that Mr.Rajan will now most certainly bring down interest rates. But that is really too premature. What logic says is that he might probably wait for more sustainable data to come in. And also there is enough liquidity in the market; so when banks are flush with funds and there is a general sense of optimism in the air, what could be the logic to reduce rates at this juncture. Also growth is not hurting; so even the excuse of ‘growth is hurting’ could not be a reason.

Also come to think of it, if RBI does bring down rates, say by 25 bps, wont that be mere tokenism? How will that small rate cut, apart from boosting sentiments temporarily really help the economy?

Yes, these are good numbers which came in today but that’s about it. The market which is as such on new highs, will continue to follow its own trajectory with company specific news driving stocks.

All eyes will now be on 2nd Dec when the RBI Credit Policy will be declared.