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Saturday, 20 June 2015

WPI Deflation Continues, Industry Output Revives

WHOLESALE PRICE INDEX

Wholesale Price Index (WPI) for the month of May, 2015 continued with its deflationary trend at (-)2.36% as compared  to (-)2.65% in the previous month. Inflation has stayed negative consecutively for the past 7 months. The food inflation came down to 3.78% as compared to 5.73% in the previous month. The fuel and power segment, inflation declined by (-)10.50% as compared to (-)13.03% 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 by (-)1.80% as compared to (-)0.30% in the previous month. Manufactured products also witnessed a decline to (-)0.64% compared to (-)0.52% 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

Consumer Price Index (CPI) however rose to 5.10% in the month of April, 2015 as compared to 4.87% in the previous month. The CPI did notch up a bit but the comforting factor was that the Food Inflation declined over the same period.
RBI is on course with its Short and Mid-term Inflation target. With CPI in check, which 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 4.1% in April,2015 as compared to 2.1% in March,2015.
This growth on yearly basis is contributed due to rise in manufacturing, mining as well as activities in Capital and Consumer Non Durables sector. Manufacturing Sector grew by 5.1% while Capital Goods Sector expanded by 11.1%.
However, the IIP growth rate shows that economy is looking to revive and consolidate its position and augurs well for the future.
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 6th successive month with May witnessing 20.19% 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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