JUNE CPI RISES WHILE MAY IIP SURPRISES
By Ruma Dubey
Food inflation for June rose to 7.79% and Vegetable inflation rose to 14.74% v/s 10.77%. This seems like the right picture given the high price, over Rs.100/kg that we were paying for tomatoes in June. Thanks to lower prices of milk. Pulses, cereals, fuel being down, the overall June CPI was at 5.77% v/s 5.76% in May.
What this means in that inflation will be remain the prime concern in the coming months and at least till September, we could see inflation at higher levels. It is only after October, when winter sets in and harvests happen and supply is enhanced that food inflation will start getting eased.
On the other hand, news from the IIP front was more pleasant. From a de-growth in April at -0.8%, in May IIP improved to 1.2%.
For the market, IIP no longer seems to hold much relevance. The overall feeling is that is does not really give the true impression of what is happening on the ground. As such, before the end of this year, the base year for calculation of IIP and WPI will be changed from the current 2004-05 to 2011-12. This is what they did for calculation of GDP, which propelled India to become the fastest growing economy of the world, which again is not really a representation of the truth. Thus we wonder if mere changing of base year will help.
There is talk that the Govt might revise the weightage given to various goods. Currently, the weightage of IIP data is broadly divided into three segments – manufacturing (75.53%), mining & quarrying (14.15%) and electricity (10.32%). The numbers for IIP are usually released within 6 weeks after the end of the month. The figures are revised in the next and the third month based upon the revised Industrial production data furnished by the source agencies. The data is collected from Department of Industrial Policy and Promotion, Indian Bureau of Mines, Central Statistical Organization, Central Electricity Authority and 11 other agencies.
We recently read reports about how USA is itself a bit wary now about our GDP data. Within India also, most economists agree that data collection in IIP is plagued with two problems – either data does not get collected every month and when it does get collected, it is all tallied up in one single month and thus the irrational volatility. Or else data is coming in from only a handful plants and then it is generalized for the entire sector. The Govt surely needs to rework the way data is collected, classified and collated. Policy decisions, especially those by RBI are based on IIP and it is imperative that it is accurate.
Coming back to the impact of data on hand, the market will shrug this off tomorrow – it has more important things to worry about like who will be the new RBI Governor, Q1FY17 numbers, progress of monsoon and kharif sowing and the all-important Monsoon session of the Parliament which begins on 18th July.
RBI has no credit policy scheduled for this month; it is now on 9th August and soon expectations will start building up that the RBI Governor, the last one before Rajan leaves in September, might give a small rate cut as a parting gift. Yes, that how the media will build the hype – last policy of Rajan.
So there is much more to look forward to and this macro economic data will not have much impact on the markets.