IIP for May came in lower at 3.1% v/s 3.4% (MoM) and CPI was at 3.18% for June v/s 3.05% (MoM) and this was obviously led by increase in prices of food and vegetables/fruits.

Growth for May is a disappointment but then looking at the high frequency data for the past few months, this does not come as a surprise at all. Capital goods is very disappointing, a trend which we have been seeing for some months now. Obviously, industrial growth is not picking up and this is a direct pointer to that fact.

But the point to be noted here is that given the core inflation moving over 4% and growth being benign, it seems more or less a given that come August and RBI could once again announce a 25 bps cut. The Budget has not helped, maybe the onus does lay only on RBI now.

Internals of IIP: (MoM)

Manufacturing 2.5% v/s 2.8%

Capital goods 0.8% v/s 2.5%

Primary goods 2.5% v/s 5.2%

Intermediate goods 0.6% v/s 1%

Consumer durables -0.1% v/s 2.4%

Consumer nondurables 7.7% v/s 5.2%

Electricity 7.4% v/s 6%

Mining 3.2% v/s 5.1%

In terms of industries, 12 out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of May 2019 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials’ has shown the highest positive growth of 24.8% followed by 15.9% in ‘Manufacture of food products’ and 9.4% in ‘Manufacture of computer, electronic and optical products’.

On the other hand, the industry group ‘Manufacture of paper and paper products’ has shown the highest negative growth of (-) 12.2% followed by (-) 9.9% in ‘Manufacture of furniture’ and (-) 8.7% in ‘Manufacture of fabricated metal products, except machinery and equipment’.

Well, we have these numbers as of now to work with, real or doctored and we should just assume that it gives us a slight inkling about what could be the happening on the ground.

In terms of CPI, seasonally, this is the time when food and vegetable prices do rise and will do so till winter. Hopefully, the farmer gets the advantage of these prices going up. Significantly, this time around, the threshold of 4% as given by RBI has been breached.

What we are also seeing is that gap between the rural and the urban inflation remains high – rural CPI was at 2.21% v/s 4.33% in urban for May.

Internals of CPI: (MoM)

Food 2.37% v/s 1.83%

Pulses 5.68% v/s 2.13%

Vegetables 4.66% V/S 5.46%

Fuel & light 2.32% v./s 2.48%

Housing 4.84% v/s 4.82%

Cereals 1.31% v/s 1.24%

Clothing & footwear 1.52% v/s 1.8%

Transport & Communication 0.73% v/s 1.63%

Well, to keep the positive spirit alive, we will say that growth will pick up in the second half of FY20 but then the underlying truth is that if private sector investment does not pick up, those green shoots could disappear before they even come. Also there is a lot of uncertainty, especially on the global front and till that settles, growth will continue to struggle. At this juncture, to say that RBI cutting rates will boost the sagging consumption story would be too far-fetched.

Let’s look at things this way – growth slows down the most before it starts climbing back up; so let us see when we hit the bottom and bounce back from there.