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Friday, 16 January 2015

Inflation Rises Marginally in December: WPI INFLATION at 0.11%

Wholesale Price Index (WPI) for the month of December,2014 has rose marginally for the first time in 7 months to 0.11% after being flat in the previous month. Although the rise is lower considering projected rise was around 0.5%. The food inflation rose to -4.78% in the month of December. On year to year basis the Food Inflation has rose by 5.2%. Fuel and Power prices too declined by 7.8% during the same period. The fall in Crude prices below $45 per barrel has helped India. Wholesale Inflation takes into account the prices paid by the manufacturers on the goods imported and used as inputs. The main reason behind the WPI going down is lowering of the Crude prices in the International Market and the Dollar/Rupee stability seen over a period of time. The further depletion in prices of Gold is another plus for the economy as it will help in bring down the Current Account Deficit (CAD).

Consumer Price Index (CPI) rose to 5% in the month of December, 2014. With the expected Crude prices hitting an all time low in the International Market and prices of essential food prices remaining in check it seems that RBI is on course with its Short term Inflation target.

Factory output grew at 3.8% in November the fastest in last 5 months. For October, inflation figure was revised to 1.66% from earlier estimate of 1.77%. IIP (Index of Industrial Output) remains a cause of concern and if things don’t change we will see the pressure in the near future. As the growth needs to be consistent over a period of time to see manufacturing sector reviving itself.

RBI had revised CPI for March, 2015 to 6% and seems to be on course.
RBI wants to ease Consumer Inflation to 4% very soon.
Retail Inflation in vegetables also rose by 0.58% in December against a decline of 10.9% in November.

RBI too acted with the inflation remaining under check by cutting down on the repo rates at which it lends to the Banks by 25 basis points to 7.75% from 8%. This is the first time RBI has reduced rates since 3rd May, 2013. This will help in the industrial growth as economy is expected to accelerate. Industrial Output has been under stress for quite some time now. Government also realizes the need for structural reforms. Regulations and Tax reforms also need to be more transparent and investor friendly to promote the Industrial growth.

I strongly believe for growth of Industrial Growth (Index of Industrial Production) apart from rate cuts, we need clear Industrial policies in order to attract investments. Manufacturing sector revival is also very important as we witness slowing down in the Information Technology and related sectors thereby leading to escalation of unemployment issue. Government may also find it tough to stick to the projected fiscal deficit of 4.1% as the revenue generation has been slow.

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