Perspective on IIP and CPI data By Dr. M Govinda Rao, Brickwork Ratings
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Below is perspective on IIP and CPI data By Dr. M Govinda Rao, Chief Economic Adviser at Brickwork Ratings
The data on IIP in September and inflation in October released today show the deceleration in industrial production and increase in inflation are not encouraging.
The progressive easing of lock down restrictions should have helped to accelerate industrial production. However, the IIP in September shows a sharp deceleration at 3.1% from 11.9% growth reported in the previous month. With the recovery in economic activities following the easing of the lockdown-related restrictions, industrial activities reported significant improvements, led by better manufacturing activity in the past few months. However, due to severe power shortages due to constrained coal supply has decelerated production activities across industries during September. Amongst the use-based category too, capital goods reported only 1.3% growth, and both consumer durables and non-durables production contracted by 2% and 0.5% respectively.
CPI inflation increased to 4.48% in October 2021 as against 4.35% in the previous month. Food inflation too is slightly up from 0.68% in September to 0.85%in October. The core inflation is high at 6.1% and the fuel and light has recorded 14.4% rise. Although the food inflation as a whole at 0,85% is marginally higher than in the previous moth (0.68%), within the group, pulses have risen by 5.42%.
The trend in industrial production and on the inflation front shows that the RBI has to closely monitor the growth – inflation dynamics. It has already started normalising the excess liquidity in the system, but the supply side issues need to be addressed and on this, MPC has little control.
We expect that the RBI is not likely to change its policy stance and hold the rates at current levels in this fiscal but will closely monitor the liquidity in the system. The RBI will also have to take note of the impact of tapering in the Fed and the European Central Bank
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