Tuesday, 17 May 2016

Wholesale Inflation In Positive for First Time in 18 Months

Wholesale Price Index (WPI) for the month of April, 2016 has bucked the negative trend for the first time in the recent past, as it gained 0.34% as compared to (-)0.85% in the previous month. Inflation is in the positive after 18 months. The rise is mainly attributed to rise in the food prices and manufactured products. However, the softening of crude prices has shielded against steeper rise in inflation rates. The food inflation rose marginally to 4.23% as compared to 3.73% in the previous month. The fuel and power segment, inflation declined by (-)4.83% as compared to (-)8.3% 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 in control is the continuous slide in Crude prices in the International Market and weak demand. However, any substantial rise in Food Inflation may become a cause of concern in the future. The recent prediction by Meteorology Department of good rains this year holds out hope for the economy as a whole, although the arrival of monsoon has been delayed by a week. On month to month basis Primary articles rose by 2.34% and Manufactured products rose by 0.71%. The index provides Primary Articles with 20.11% weightage, 64.97% for manufactured products and power & fuel with 14.91%.

Consumer Price Index (CPI) too rose in the month of April, ‘16 as it stood at 5.39% as compared to 4.83% in the previous month. The steepest rise witnessed in last 3 months. Spurt in food prices was the prime reason behind rise. As Food Inflation rose to 6.32% from 5.21%recorded in the previous month. Consumer Food Inflation has 47% weightage in CPI Index. The forecast for good rains will help to keep the inflation in check.

With Inflation on the rise, RBI will not be encouraged to lower the lending rates immediately. However, if monsoon lives upto its promise of good rains and food inflation remains within limits, we may expect rate cut very soon. As Industrial Output is not looking very promising and concerns need to be addressed at the earliest.
CPI is on the rise, which is attributed to higher weightage being given to retail inflation, reflects the true impact of inflation on Common People. Going forward, stability in CPI will lead to strengthening of the economy and would call for changes in the monetary policy.

Index of Industrial Production (IIP) plunged to 0.1% in the month of March,’16 as compared to growth of 2% witnessed in February,2016. IIP figures are disappointing as they have failed to carry on the momentum from the previous month.
The decline is mainly contributed due to slowness in Manufacturing, Mining and Capital Goods Sector. As manufacturing sector declined by (-)1.2%, whereas Mining sector fell by (-)0.1%, while the Electricity Sector grew by 11.3%. The Capital Goods fell steeply by (-)15.4% while Consumer Non Durables Sector recorded growth of 8.7%.  
The growth of factory output is essential for the economy. Industrial growth is mandatory 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% and seems to have done well to achieve it. RBI had announced a rate cut in April as Inflation is on the lower side and Industry needs massive boost as it is struggling for a while now. Further rate cut is also a possibility in the near future.
RBI wants to ease Consumer Inflation to 4% which for the time being it seems to be an ambitious target, which will be tough to meet. However, if inflation remains within 5%-6%, RBI should be fairly satisfied.
The Wholesale inflation back in positive may be good, as it indicates raise in demand, which in turn will lead to increase in productivity thereby leading to better wages and more 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. Exports are on decline on 17 months consecutively. 
Global Sentiments are pretty reserved at this point of time with China slowing down. 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.

India is emerging as the most preferred destination for the Investors and promises to bring in more and more investments which augurs well for the economy as well the as the population.

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