IIP AND CPI - BOTH ARE VA VA VOOOOOOM!

By Ruma Dubey

Wow! That’s the first reaction when we saw the August IIP come in at 6.4% v/s 4.2% (MoM) against most expecting around 5%. This is the highest IIP since October 2012.

Manufacturing sector is what led the growth and so did consumer durables which showed an over 7% growth despite the lower base effect. What this means is that there is buying due to lower prices and probably attributable to the festive season onset. Yet we cannot fathom how this growth came in when all along we have been saying that things are not moving much in the industry. MoM, there is a such wide gap, especially in the background that exports for the past two months have been performing badly. This growth, somehow does not help but feel like being on thin ice as the growth of almost 6.5% needs to first look sustainable.

For now, we should just enjoy this IIP number and nowadays we have very little macro data to celebrate for. And good news on the CPI front for September too at 4.41% v/s 3.66% (MoM).

Internals of the CPI on MoM:

• Rural inflation at 3.61% 2.67%
• Urban Inflation at 5.05% v/s 4.07%
• Food inflation at 3.88% v/s 2.20%
• Vegetables at 0% v/s -6.36%
• Clothing and footwear at  6% v/s 5.77%
• Cereals and product inflation at 1.38% v/s 1.22%
• Fuel and light inflation at 5.42% v/s 5.7%

This is very good as one had expected food inflation to actually be way above 5% given the ruling price of pulses and vegetables. This is the second consecutive year of poor rains and one had expected this effect to trickle down to lead to a higher inflation. That did not happen which means two things – either the numbers are yet to take into account the effect of higher cost of veggies, pulses and poor rainfall or that there is good food management at the ground level.

In the IIP, in terms of industries, 15 out of 22 industry groups in the manufacturing sector have shown positive growth in August’15 v/s August ’14. They are - ‘Furniture; manufacturing, showing the highest positive growth of 90.8%, followed by 40.8% in Electrical machinery & apparatus and 19.5% in Wearing apparel; dressing and dyeing of fur. On the other hand, the industry group tobacco products has shown the highest negative growth of -9.5%, followed  by -9.1% in publishing, printing & reproduction of recorded media and -9% in Radio, TV and communication equipment & apparatus.

Some of the important items showing high positive growth during the current month over the same month in previous year include Gems and Jewellery, Sugar Machinery, H R Sheets, Fruit Pulp, Cable, Rubber Insulated, Vitamins, Aluminium wires & extrusions, Carbon Steel, Steel Structures and LPG. Some of the other important items showing high negative growth are: ‘Instant Food Mixes (Ready to eat), Grinding Wheels, CR Sheets, Stainless/ alloy steel, Furnace Oil, Purified terephthalic acid, Colour TV sets, Aerated Waters and Soft Drinks and Air Conditioner (Room).

For now, there is no expectation of any interest rate cut as we have already got more than what we wanted. The markets are sure to react positively to this number but eventually it is individual company news which will guide the indices. Q2 Results will rule the roost. October 28th is the US Fed Reserve meet and that will decide the course of the future.