Tuesday, 15 September 2015

WPI Deflation Continues In August, Industrial Output Looks Promising


Wholesale Price Index (WPI) for the month of August, 2015 continued with its deflationary trend and fell to a new low at (-)4.95% as compared  to (-)4.05% in the previous month. Inflation has stayed negative consecutively for the past 10 months. The WPI downward trend was mainly contributed due to cheaper Fuel and Vegetables. The food inflation has remained negative at (-)1.13% as compared to (-)1.16% in the previous month. This is the leanest period observed since the WPI Index was launched in 2005. The fuel and power segment, inflation declined by (-)16.5% as compared to (-)12.8% 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 (-)3.7% as compared to (-)3.66% in the previous month. Manufactured products also witnessed a decline to (-)1.9% compared to (-)1.5% in the previous month. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.
The Inflation figure for June has been revised to (-)2.13% from provisional estimate of (-)2.40%.


Consumer Price Index (CPI) also fell to a record low at 3.66% in the month of August, 2015 as compared to 3.78% (revised to 3.69%) in the previous month. The food inflation rose slightly to 2.20% from 2.15%, however with prices remaining in control across the segments ensured that CPI remained in check.
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. The Monsoon has entered the last phase and will be crucial in determining the inflationary trend.


Index of Industrial Production (IIP) continued to look up, as it grew by 4.2% in July,2015 as compared to 3.8% (revised to 4.4%)in June,2015. This is second consecutive month recording a growth above 4%.
This rise is mainly contributed by the growth in the Manufacturing Sector, which grew at 4.7% while the Consumer Durables sector recorded impressive growth for consecutive months, as it rose by 11.4%. Electricity and Mining also have registered growth during the same time period, Capital Goods Sector was another sector which recorded an impressive growth figure of 10.6%.
The expansion of Industrial Output augurs well for the economy. This is expected to generate jobs for individuals, however the turbulent European Crisis and Chinese downturn is a cause of concern and one needs to be cautious going forward. The Indian Economy however seems to be on the right track and holds good for the future.
As I had mentioned previously, 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.


RBI has set a target of maintaining CPI below 6% till January,2016 and seems to be on course.
RBI wanted to ease Consumer Inflation to 4% very soon and is well on course.
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 been decline for quite some time now which will impact India’s earnings. 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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