By Ruma Dubey

IIP numbers were a negative surprise and CPI came in more or less on expected grounds. Thank god the markets had closed, what with the already 600-odd point fall or else, we could have seen some more disappointment!

First a look at April Consumer Price Index (CPI).

• Retail inflation came in at 4.87% for April v/s 5.17% in March
• Food inflation was at 5.11% v/s 6.14% (MoM)
• Vegetable prices rose fell sharply from 11.26% to 6.63% (MoM)
• Clothing, footwear prices were at 6.15% v/s 6.27% (MoM)

Despite the unseasonal rains, this lower CPI did come as a surprise. It is expected that this sub-5% CPI will continue onto August and maybe even till September. This is largely in line with what the RBI had expected. But there are two worries – rains and Minimum Support Price (MSP). Today, two news came in – one is that rains will hit at the right time, around 27^th of May in Kerala. And the other one was not too positive – Japan confirmed the setting in of El Nino and this does not spell good news for Asian crops. Well, we can look at the second news like this – we have experienced El Nino earlier also and that did not affect the food production all that much so hopefully this time too, India will escape the full brunt of El Nino. Once again, this is pure conjecture; what Nature wills, mankind cannot comprehend.

The issue of MSP is actually a bigger worry than rains. Given the unseasonal rains affecting so many farmers across India, the hush-hush whispers in the corridors of power is that MSP could be hiked. And if that happens, inflation will automatically shoot up. So that is one issue which we and RBI Governor might have to keep in mind.

Now to IIP. The numbers were expected to be low and they were. Coming at 2.1%, down from 4.9% in February, there was a fall all around. At a glance, consumer non durables seems to have taken the biggest MoM hit but that’s not so; last month number of 10.7% was actually an aberration and this month we have seen the correction. Capital goods too seems to be moving on expected lines, no sharp ups and downs. In that sense, manufacturing is what showed the sharpest fall, from 5.2% to 2.2%.

13 out of the 22 industries in the manufacturing sector showed a positive growth during March (MoM) – Furniture has shown the highest positive growth of 34%, followed by 18.2% in ‘Electrical machinery and apparatus and 12.5% in ‘Wood and products of wood & cork except furniture; articles of straw & plating materials’. On the other hand, those showing a fall were - ‘Radio, TV and communication equipment & apparatus’, which showed the highest negative growth of -62.8%, followed by -39.4% in ‘Office, accounting & computing machinery’ and -12.1% in ‘Tobacco products’.

Some of the important items showing high positive growth in March (MoM) were ‘H R Sheets, Woollen Carpets, Conductor, Aluminium, Plastic Machinery Including Moulding Machinery, Gems and Jewellery, Air Conditioner (Room), Vitamins, Stainless/ alloy steel, Ship Building & Repairs, Carbon Steel, Black Board, Pens all kinds and Cable Rubber Insulated.

Two pertinent questions emerge – What will RBI do on 2^nd June and what will the markets do tomorrow?

RBI need not wait for 2^nd June if the Governor feels that time is ripe for a rate cut given the inflation remaining within its set target. But again, given the uncertainty over monsoon, he might prefer to wait till July or August.

Markers are in their own world of MAT and Government policy (in)actions. So these macro numbers might remain largely a blip in the bigger picture. If anything else, the market will sulk as IIP has slipped, reiterating that the Govt needs to act, act fast.