DEC IIP AND JAN CPI - A HUGE SIGH OF RELIEF

By Ruma Dubey

The Railway Vote-on-account was a damp quib – with elections round the corner, no one expected a hike in the fares as that would have been a political harakiri at this juncture. And as expected, the Railway Minister also introduced new trains – so what’s new about this? So what if hygiene conditions are pathetic and security remains a big suspect?

And while we were nursing this disappointment, CPI and IIP numbers brought in much cheer. This time around, expectations were better, for both IIP as well as CPI. And both came in much better than expected, a huge sigh of relief for sure.

CPI for Jan’14 came in lower at 8.79% v/s 9.87% in Dec’13 and IIP for Dec’13 came in the negative, much as expected but the only solace is that the contraction was lower at -0.6% compared to -2.1% in Nov’13. The same degrowth of 0.6% was seen in Dec’12.

As expected, electricity has done very well and so did basic and intermediary goods but the sharp fall in consumer durables was shocking – though lower MoM. The fall in capital goods too was more pronounced. The tales of woe of manufacturing continues but it was better MoM though worse off YoY.

The IIP data indicates that demand destruction continues and that means, inflation going ahead is sure to ease. Oct to Dec are three of the best months given the festive season demand; so when this is down, it is a cause for worry.  

In the manufacturing sector, 8 out of 22 industry groups covered under this showed a negative growth where ‘Radio, TV and communication equipment & apparatus’ showed the maximum fall, followed by ‘Furniture and then Office, accounting & computing machinery. Now this makes one wonder whether these goods have any major relevance in the overall manufacturing sector to bring down the entire IIP?

The sectors which showed positive growth were - Vitamins, (198.4%) , Sugar Machinery’ (78.8%), ‘Ayurvedic Medicaments’ (62.7%), ‘Cable, Rubber Insulated’ (59.8%), ‘Air Conditioners (Room)’ (47.2%), ‘Steel Structures’ (38.5%), ‘Leather Garments’ (27.4%), ‘Transformers (Small)’ (26.7%), ‘Stainless/ alloy steel’ (25.0%), ‘Cashew Kernels’ (23.4%) and ‘Antibiotics & its preparations’ (20.1%).

On the other hand, sectors to show negative growth were ‘Polythene Bags incl. Hdpe & Ldpe Bags’ [(-) 58.4%], Aluminium Conductor’ [(-) 55.9%], ‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 39.0%], ‘Boilers’ [(-) 38.9%], ‘Earth Moving Machinery’ [(-) 38.2%], ‘Gems and Jewellery’ [(-) 33.3%], ‘Polyester Chips’ [(-) 31.9%], ‘Molasses’ [(-) 30.3%], ‘Pens of All Kinds’ [(-) 29.2%], ‘Computers’ [(-) 25.9%], ‘Wood Furniture’ [(-) 25.7%] and ‘Commercial Vehicles’ [(-) 25.3%].

Meanwhile, the news for now on the CPI is good but this is again seasonal, mainly pulled down on account of food inflation. And with the RBI Governor making it amply clear that it will eventually start using CPI and not WPI for inflation indication, this CPI cooling off comes as a good news. CPI tracks retail prices paid by consumers for finished products. There is a major difference between the WPI and the CPI as the prices differ due to subsidies, sales tax, excise duties, distribution costs. WPI on other hand is the measure of price of manufactured goods but does not measure services. With 55% of the GDP basket coming from services, with WPI not measuring services, it just does not make sense to continue with this measure.

Thus under the current circumstances, we can rejoice the Jan inflation if we decide to just live for the day. But if we want to be more pragmatic and show foresight, Feb too might be relatively an easy month for inflation but going ahead, things might once again get sticky.