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WPI Deflation Eases, CPI on the High, Factory Output Declines | Wealthtech Speaks

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WPI Deflation Eases, CPI on the High, Factory Output Declines

Wholesale Price Index (WPI) for the month of December, 2015 has
shown signs of deflationary trend easing, as inflation rose to (-)0.73% as
compared to (-)1.99% in the previous month. Inflation has stayed negative
consecutively for the past 14 months. This is the leanest period observed since
the WPI Index was launched in 2005. The nominal rise in WPI inflation is mainly
contributed to rise in Food Inflation although the falling Crude Prices have
helped to keep the wholesale inflation in negative. The food inflation rose
steeply to 8.17% as compared to 5.20% in the previous month. The fuel and power segment, inflation
declined by (-)9.15% as compared to (-)11.09% 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 the
negative is the continuous slide in Crude prices in the International Market
and weak demand. However, the rising Food Prices is a cause of concern. On
month to month basis Primary articles rose by 5.48% and Manufactured products
fell by (-)1.36%. The index provides Primary Articles with 20.11% weightage,
64.97% for manufactured products and power & fuel with 14.91%.
The Inflation figure for October has been revised to (-)3.70% from
provisional estimate of (-)3.81%.
Consumer Price Index (CPI) is at 15 month high, as it rose
consecutively for the 5th month to 5.61% in the month of December, 2015 as
compared to 5.41% in the previous month. The food inflation rose to 6.30% from 6.07%
in the previous month. Fuel and Light Inflation grew by 5.45%, while Health and
Housing also rose above 5%. Consumer Food Inflation has 47% weightage in CPI
Index.
RBI will now be cautious as it will struggle to keep the CPI under
6% as projected previously. With CPI on 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) slowed during the period as
it contracted by 3.2% in November,2015 as compared to growth of 9.8% in October,2015.
It is the first time that IIP has contracted in 13 months.
The slide is mainly contributed to decline in the Manufacturing
Sector, which fell by 4.4%, whereas Mining sector too contracted by 2.3%, while
the Consumer Non Durables sector fell by 4.7%. However, Consumer Durables and Electricity
sector grew by 12.5% and 0.7% during the same period.
The growth of factory output is essential for the economy and slowing
down does augur well for it. 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.

OUTLOOK

  • RBI has set a target of maintaining CPI below 6% till January,2016
    but will struggle to achieve it in my opinion.
  • RBI wants to ease Consumer Inflation to 4% which for the moment
    seems to be an ambitious target, which will be tough to meet.
  • 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. Exports are on decline on 13 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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