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Wholesale and Retail Inflation Rise, while Industry Output Falls | Wealthtech Speaks

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Wholesale and Retail Inflation Rise, while Industry Output Falls

Wholesale Price Index (WPI) for the month of May, 2016 continued
to rise, gaining 0.79% as compared to 0.34% in the previous month. Inflation is
on the rise for past two months. The rise is mainly attributed to steep rise in
the food prices and manufactured products. However, the softer crude prices has
shielded against steeper rise in inflation rates. The food inflation rose
steeply to 7.88% as compared to 4.23% in the previous month. The fuel and power segment, inflation
declined by (-)6.14% as compared to (-)4.83% 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 witnessing marginal
rise is the continuous slide in Crude prices in the International Market and
weak demand. However, any further 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, so one would be
hoping that Monsoon plays its part well. On month to month basis Primary
articles rose by 4.55% as compared to 2.34% in the previous month while
Manufactured products rose to 0.91% from 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) rose to 2 year
high in the month of May, ‘16 as it stood at 5.76% as compared to 5.39% in the
previous month. Retail Inflation has been on the rise for quite sometime now. Spurt
in food prices was the prime reason behind rise. As Food Inflation rose to
7.55% from 6.40% (revised) recorded in the previous month. Spike in prices of
Vegetables, Sugar and Pluses were largely responsible for the rise. Consumer
Food Inflation has 47% weightage in CPI Index. The forecast for good rains will
help to keep the inflation in check. The recent spike in petrol and diesel
prices will also not help the retail inflation going forward.
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)
Index of Industrial Production (IIP) plunged to (-)0.8% in the month
of April,’16 as compared to growth of 0.1% witnessed in March,2016. IIP figures
are disappointing as they have failed to build any momentum in the past few
months.
The decline is mainly contributed due to slowness in
Manufacturing, Consumer Goods and Capital Goods Sector. As manufacturing sector
declined by (-)3.1%, whereas Mining sector grew by 1.4%, while the Electricity
Sector grew by 14.6%. The Capital Goods fell steeply for the sixth month in a
row by (-)24.9% while Consumer Goods Sector too fell by 1.2 %.  
The growth of factory output is essential for the economy. Industrial
growth is mandatory to generate jobs for individuals, however the turbulent European
market and China slowing down is a cause of concern and one needs to be
cautious going forward.
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% but with Food
Inflation surging it seems to be a very challenging task. If monsoon does not
deliver on the promise it will make the situation even grimmer.  
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.
RBI will not look to revise Repo rates immediately as it has to
manage the inflationary pressure.
The Wholesale inflation 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. However, the rise in food prices
will negatively impact the consumers.
Exports have been decline for quite some time now which is impacting
India’s inflow. 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 18 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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