Industrial production, inflation double whammy hits Indian economy hard

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The good news is perhaps a significant base impact on CPI beginning Dec’ 13. The good news is perhaps a significant base impact on CPI beginning Dec’ 13.
SummaryWPI numbers for Nov. to be released on Monday should decline, if not, inflation set to rise further.

Index of industrial production (IIP) growth for Oct’ 13 declined by 1.8%. The bad news is that the pace of growth in export oriented sectors slowed down in Oct’ 13, notably that of apparel & leather.

The most worrying aspect of the IIP data is the continued dismal performance of consumer durable sector (for the ninth straight month) with consumer durables and even consumer non-durables recording a decline of at 12.0% and 1.8% respectively.

The other worrying factor is that consumer price index (CPI) inflation jumped to 11.24% for Nov’ 13. This was not entirely unexpected, as the gap between CPI food and WPI food is getting corrected, with the gap now narrowing down to 375 basis points.

Hypothetically, WPI numbers for Nov’ 13 to be released on Monday should decline, with WPI food correcting to levels below CPI food. However, if that is not the case, and WPI food declines only marginally in Nov, then a further upside to CPI may not be even ruled out.

The good news is perhaps a significant base impact on CPI beginning Dec’ 13. Also, core CPI has edged down in Nov’13, implying the CPI increase has been entirely food driven.

As per IIP numbers are concerned, we believe consumer durables de-growth may have bottomed out, if the trends in CPI- household requisites price trends are an indication.

By Dr. Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, State Bank of India.

(The views expressed are those of the author.)

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