IIP SHRINKS AS RETAIL INFLATION RISES

By Ruma Dubey

IIP for February 2017 actually contracted! It fell to a four-month low of -1.2% v/s 2.7% growth clocked in January and YoY, it was down from a growth of 2%.

This degrowth or contraction in growth was on the back of poor show by the manufacturing sector and we can lay some of the blame also on capital goods as well as consumer goods. Manufacturing contracted by -2% v/s growth of 2.3% in January and YoY, it was down from a measly growth of 0.7%. 15 out of the 22 industry groups in the manufacturing sector showed a negative growth. Tobacco showed the highest negative growth in the sector of -42.8% , followed by -21.7% in Food products and beverages and -20.6% in Office accounting and computing machinery. Positive growth in the manufacturing sector came in from Electrical machinery & apparatus – up by 17.4% and 10.7% growth in something completely inane and innocuous as ‘Wearing apparel; dressing and dyeing of fur’. Basic metals showed a 9.9% growth.

Buying of cars went down in February, which was on account of demonetization and this affected the consumer goods sector which showed a degrowth of -0.9% but much better than contraction of -9.5% last month.

Capital goods sector which is always very lumpy and volatile, fell down sharply to 3.4% v/s 10.7% (MoM). The non consumer drurables output shrunk by 8.6%.

Some important items that have registered high negative growth include ‘Woollen carpets’ [(-) 66.4%], ‘Plastic machinery including Moulding Machinery’ [(-) 52.2%], ‘Ship Building and Repairs’ [(-) 49.7%], ‘Sugar Machinery’ [(-) 47.8%], ‘Sugar’ [(-) 41.6%], ‘Molasses’ [(-) 39.0%], ‘Cigarettes’ [(-) 37.7%], ‘Aluminium Conductor’ [(-) 29.3%], ‘Three-Wheelers (including passenger and goods carrier)’ [(-) 24.5%] and ‘Leather garments’ [(-) 22.0%].

Some important items showing high positive growth during the current month over the same month in previous year include ‘Cable, Rubber Insulated (241.2%), ‘Cement Machinery’ (116.5%), ‘Electric Sheets’ (90.1%), ‘HR Coils/ Skelp’ (29.1%), ‘Antibiotics and it’s preparations’ (25.6%), ‘Biaxially Oriented Polypropylene (BOPP) Film’ (25.5%) and ‘Stainless/ alloy steel’ (24.2%).

So while IIP shrunk, retail inflation rose to 3.81% in March v/s 3.65% in February. Economists call this as “perk up in demand as demonetization effect wanes.” But the fact is that as heat starts scouring the country, in summer months, rise in retail inflation is typical and happens every year. In fact RBI itself has warned that inflation looms large over the next 6-12 months. It would be too immature to say that this could trigger off a rate hike in current fiscal.

The market will not take too kindly to these numbers when it opens tomorrow morning but the tide could be turned around if Infosys announces good set of results for Q4 and FY18. The result season officially begins from tomorrow and that should keep the market on its toes over the next couple of weeks, showing company specific price movements.