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Saturday, 18 July 2015

WPI Deflation Continues in June, Industrial Output Slows Down

WHOLESALE PRICE INDEX

Wholesale Price Index (WPI) for the month of June, 2015 continued with its deflationary trend at (-)2.40% as compared  to (-)2.36% in the previous month. Inflation has stayed negative consecutively for the past 8 months. The food inflation came down to 2.88% as compared to 3.78% in the previous month. The fuel and power segment, inflation declined by (-)10.03% as compared to (-)10.51% 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 remaining down is due to Food Inflation remaining in check, 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 (-)0.76% as compared to (-)0.77% in the previous month. Manufactured products also witnessed a decline to (-)0.77% compared to (-)0.64% 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 5.40% in the month of June, 2015 as compared to 5.01% in the previous month. This raise is mainly attributed to the Food Inflation which rose from 4.8% in the previous series to 5.48% in the present cycle.
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. However, all eyes will be set on the Monsoons as it will be a critical factor in determining the inflationary trend.

INDEX OF INDUSTRIAL PRODUCTION (IIP)

Index of Industrial Production (IIP) slid to 2.7% in May,2015 as compared to 4.1% in April,2015(revised downwards to 3.36%).
This decline is mainly contributed by the slowdown in the Manufacturing Sector, which grew at just at 2.2% when compared to 5.9% on year on year (yoy) basis. The slowdown was also witnessed in Power, Mining and Capital Goods Sector when compared to previous fiscal year for the same month.
The slowing down of Industrial Output does not augur too well for the economy. Employment opportunities for young Individuals will shrink and with economy slowing down everywhere one needs to cautious with decision making. The emerging as well as the ageing economies has made very slow progress inspite of showing signs of recovery.
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 7th successive month with June witnessing 15.82% slide (yoy). The fall is mainly contributed to poor global demand and softening of crude prices. Global Economic slowdown has not helped India’s cause either.
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. However, RBI has already slashed rates thrice earlier so it will be interesting to see the policy adopted by them, when they meet next to discuss the same.
Global Sentiments are pretty reserved at this point of time with China struggling and Greece fighting an economic battle of its own. The major challenge at this point of time is to ensure economic stability and safeguard the Interests of developed and developing economies of the world.

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