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Saturday, 16 May 2015

WPI Deflation Continues, Falls To New Low In April

WHOLESALE PRICE INDEX (WPI)

Wholesale Price Index (WPI) for the month of April, 2015 continued with its deflationary trend as it fell to its lowest at (-)2.65% as compared  to (-)2.33% in the previous month. It is lowest inflation level recorded in almost a decade. The food inflation came down to 5.73% as compared to 6.31% in the previous month. The fuel and power segment, inflation declined to (-)13.03% as compared to (-)12.56% in the previous month. 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 due to lowering of Food Inflation, the slide in Crude prices in the International Market. The depreciation of rupee against dollar did not have much impact on the deflationary trend. On month to month basis Primary articles inflation was down to (-)0.30% as compared to 0.08% in the previous month. Manufactured products also witnessed a decline to (-)0.52% compared to (-)0.19% in the previous month. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.

CONSUMER PRICE INDEX (CPI)

Consumer Price Index (CPI) also eased down to 4.87% in the month of April, 2015 as compared to 5.17% in the previous month. The easing of Retail Inflation was mainly contributed by the fact that the Food Inflation eased considerably despite fears that unseasonal rain may just scale the prices of fruits and vegetables. However, impact of damages to crop is still uncertain and may reflect in coming months.
RBI is on course with its Short and Mid-term Inflation target. The slide in CPI is contributed due to higher weightage being given to retail inflation, which is more logical in my opinion as reflects the true impact of inflation on Common People. The stability in CPI will lead to strengthening of the economy and would call for changes in the monetary policy.

INDEX OF INDUSTRIAL PRODUCTION (IIP)

Index of Industrial Production (IIP) grew at 2.1% in March,2015 as compared to 5% in February,2015 ( revised downwards to 4.86%). On year on year basis the IIP grew at 2.6% as compared to (-)0.1% in the previous year.
This growth on yearly basis is contributed due to rise in manufacturing, mining as well as activities in Capital and Consumer Non Durables sector. It is the fastest growth rate in last 12 months.
However, the IIP has recorded the slowest growth rate in last 5 months which raises hope of a rate cut in the next fiscal policy review meet.
As I had mentioned previously too, growth in Manufacturing Sector is the only way forward for the economy. Thus the rise in the core sectors along with few others will definitely help the Economy to move forward. Manufacturing Output also constitutes 75% of IIP data.

OUTLOOK
  • RBI has set a target of maintaining CPI below 6% till January,2016 and seems to be on course.
  • RBI wants to ease Consumer Inflation to 4% very soon.
  • The depreciation of rupee against dollar is a worrying factor for the economy and the slide needs to be controlled soon.
  • The continuing deflationary trend also does not augur too well for the economy as it indicates weak demand, which in turn slows the production thereby leading to poor wages and lack of job creation.
  • Exports have continued their decline for the 5th successive month with month of April witnessing 14% slide. The fall is mainly contributed to poor global demand and softening of crude prices.
  • RBI will now seriously contemplate cutting down the repo rate as Manufacturing Sector needs major boost to revive the stagnant economy and push up reforms in order to generate more employment opportunities.

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