IIP, CPI AND THE IMD - ALL BRING GOOD NEWS FOR ONCE!

By Ruma Dubey

The numbers, both IIP for Feb’16 and CPI for March’16 came in much better than expected.

First the CPI, which to some extent went on to reiterate the lowering of interest rate which RBI had taken. It fell to 4.83% from 5.18% in February. This was much below what most analysts had expected, which was in the range of 5 to 5.05%. This sharp fall was led by lowering of core inflation.

A quick look at the internals of CPI:

Food inflation at 5.21% 5.3% (MoM)

Vegetable price was down at 0.54% v/s 0.7%

Combined fuel and light inflation at 3.38% v/s 4.59%

Pulses inflation dipped to 34.15% v/s 38.30%

Urban inflation at 3.95% v/s 4.3%

Rural inflation at 5.7% v/s 5.97%

It was only last week that Rajan had said, “Going forward, CPI inflation is expected to decelerate modestly and remain around 5% during 2016-17 with small inter-quarter variations.” Looks like that that is indeed what we will be seeing.

At the same time, he had warned how we need to watch out for the drought and its effects on inflation in these ensuing months. But the good news is that today both Skymet as well as IMD predicted above normal rainfall for current year.

The IMD said that monsoon seasonal rainfall is likely to be 106% of the Long Period Average (LPA) with a model error of ± 5%. This means that even in CPI peaks during April, May and June, we could see some relief going ahead once monsoon sets in. Thus the 5% trajectory seems to be very much within reach.

Concurring with this view is private sector weather bureau, Skymet. It issued a statement saying that monsoon rains are expected to be 105% above a long-term average, with a 35% probability of above average rainfall. The El Nino effect is likely to wane after monsoon hits the southern Kerala coast by the end of May.

The other bit of cheerful news was from the IIP. February IIP came in at 2% as against a contraction of 1.5% in January. So we are looking at growth from a scenario of de-growth. The cumulative growth for the period April-February 2015-16 over the corresponding period of the previous year stands at 2.6%.

The internals of IIP show that in terms of industries, 16 out of 22 industry groups in the manufacturing sector have shown positive growth during Feb’16 and this includes Office, accounting & computing machinery’ which has shown the highest positive growth, followed by Furniture, Medical, precision & optical instruments, watches and clocks’. On the other hand, the industry group ‘Electrical machinery & apparatus has shown the highest negative growth, followed by wearing apparel; dressing and dyeing of fur and Publishing, printing & reproduction of recorded media.

Some important items showing high positive growth include ‘Wood Furniture’ (78.7%), ‘Plastic Machinery including Moulding Machinery’ (70.7%), ‘Woollen Carpets’ (44.9%), ‘Boilers’ (35.1%), ‘Gems and Jewellery’ (33.1%), ‘Aluminium wires & extrusions’ (28.6%), ‘Aluminium Conductor’ (23.5%), ‘Telephone instruments including Mobile Phone and Accessories’ (20.9%) and ‘Steel Structures’ (20.6%).

Some important items that have registered high negative growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated’ [(-) 90.7%], ‘Aluminium Foils’ [(-) 68.7%], ‘Polythene Bags including HDPE & LDPE Bags’ [(-) 47.5%], ‘H. R. Sheets’ [(-) 43.0%], ‘Vitamins’ [(-) 23.3%], ‘Aerated Waters & Soft Drinks’ [(-) 23.1%], ‘Stainless/ alloy steel’ [(-) 22.0%] and ‘Rice’ [(-) 20.9%].

Both these economic news are indeed extremely good and we should this moment while we can. With two tough months ahead, these moments will be far and few in between!