INFLATION SOARS AND GROWTH FALLS

By Ruma Dubey

Consumer Price Index or retail Inflation for the month of November came much higher and IIP for October came in much lower. So all in all, it was an evening with a bad set of data.

Retail inflation rose sharply to 4.88% v/s 3.58% (MoM) while IIP was lower at 2.2% v/s 3.8%.

The sharp rise in inflation was led mainly by food inflation and that was not really a surprise given the way we all have paid for vegetables and fruits in Nov. Cleary it was tomatoes and onions were the ones which led to this surge. Though the prices of these vegetables have come down since the past month, there is no major let up in other vegetable prices. Also remember, the rabi crop sowing has not been as robust as it should have been; it could pick up in the next few days. Thus retail inflation as of now is a moving trajectory and could remain elevated.

A quick look into the internals of inflation (MoM):

• Urban inflation at 4.9% v/s 3.81%
• Rural inflation at 4.79% v/s 3.36%
• Food inflation at 4.42% v/s 1.59%
• Sugar & confectionery at 7.8% v/s 6.75%

On the IIP front, the slow down should not be a big concern as this is a typical cycle – Diwali month and the month before, remains volatile. And a month after Diwali, November this time, growth will show a rise. Also we have been seeing a sharp increase in order intakes, mainly infra companies, capital goods and bodes well for the months coming ahead.

Going into the internals of the IIP, in terms of industries, ten out of the twenty three industry groups in the manufacturing sector have shown positive growth during the month of October 2017 as compared to the corresponding month of the previous year. The industry group ‘Manufacture of pharmaceuticals, medicinal chemical and botanical products’ has shown the highest positive growth of 23.0 percent followed by 12.8 percent in ‘Manufacture of motor vehicles, trailers and semi-trailers’ and 9.7 percent in ‘Manufacture of computer, electronic and optical products’. On the other hand, the industry group ‘Other manufacturing’ has shown the highest negative growth of (-) 36.4 percent followed by (-) 20.9 percent in ‘Manufacture of tobacco products’ and (-) 16.1 percent in ‘Manufacture of rubber and plastic products’.

Some important item groups showing high positive growth during the current month over the same month in previous year include ‘Bodies of trucks, lorries and trailers’ (199.0%), ‘Meters (electric and non-electric)’ (64.2%), ‘Separators including decanter centrifuge’ (60.6%), ‘Digestive enzymes and antacids (incl. PPI drugs)’ (53.9%),  ‘Bars and Rods of Alloy and Stainless Steel’ (52.0%), ‘Flat products of Stainless Steel’ (50.9%), ‘Axle’ (50.3%), ‘Full-cream/ Toned/ Skimmed milk, whether or not chilled’ (21.5%) and ‘Tea’ (20.1%).

Some important item groups that have registered high negative growth include ‘Jewellery of gold (studded with stones or not)’ [(-) 76.9%], ‘Plastic jars, bottles and containers’ [(-) 52.1%], ‘Electric heaters’ [(-) 39.9%], ‘Bags/ pouches of HDPE/ LDPE (plastic)’ [(-)38.2%], ‘Other tobacco products’ [(-) 38.1%], ‘Printing Machinery’ [(-) 37.5%], ‘Tooth Paste’ [(-) 32.4%], ‘Electrical apparatus for switching or protecting electrical circuits (e.g switchgear, circuit breakers/switches, control/ meter panel)’  (-) 31.6%], ‘Plastic components of packing/ closing/ bottling articles & of electrical fittings’ [(-) 30.9%], ‘Palm Oil refined (including Palmolein)’ [(-) 28.6%], ‘T. V. set’ [(-) 25.5%] and ‘Copper bars, rods & wire rods’ [(-) 23.4%].

Well, two significant macro cues coming in as a disappointment; the market is not going to take kindly to this tomorrow. There is the US Fed meet also scheduled for tomorrow night. This might have no real impact on the Indian markets but the only positive trigger now is the outcome of the Himachal and Gujarat elections; that will turnaround the moods completely, irrespective of any macro’s, good or bad.