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IIP Grows at 6.6 Per cent, CPI Inflation Eases At 3.69 Per cent: Here Is The Experts' Take

On account of negative sentiments on domestic as well as international front, IIP and CPI data have been released by CSO yesterday, we bring you experts’ views on what these macro numbers actually mean for Indian economy

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Amidst rising fuel prices and a weakening rupee, the IIP and CPI data were released yesterday by Central Statistics Office (CSO) and to everyone’s surprise, they came as a relief to an economy reeling under negative domestic as well as international cues.

Where Industrial production grew to 6.6 per cent in July as compared to 1 per cent rise in the same month last year on account of good performance in the manufacturing sector and higher offtake of capital goods and consumer durables, CPI in the month of August eased at 3.69 per cent as compared to 4.17 per cent in July owing to fall in the prices of kitchen items, including fruits and vegetables.

CPI based retail inflation fell below 4 per cent for the first time in the year 2018 with the targeted range set by RBI. However, it is yet to be seen how it reflects in next month’s Monetary Policy review. 

We bring you experts’ views on what these macro numbers actually mean for Indian economy:-

Dr. Rucha Ranadive, Economist, CARE Ratings

IIP- “High IIP growth was majorly aided by the low base effect on account of GST effects that depressed production process last year. During FY19 ( Apr-Jul), the growth has been driven by mining and manufacturing sector whereas within the used based classification it was aided by broad based growth across segments barring consumer non-durables. Infrastructure and consumer durables have registered highest growth in the past 5 years on cumulative basis which is positive for the economy. In the capital goods, electric machinery has done well, non-electrical continues to trail. Going ahead, the upcoming festival season may push up the production however, the favorable base effect may fade in the coming months. We expect the industrial production to grow at around 5-6 per cent for the full year 2018-19.”

CPI- “The CPI based inflation came in lower due to high base effect which is likely to support the inflation numbers in the upcoming months as well. While the inflation in food products has declined, the high inflation (more than 5 per cent) in non-food components continue to weigh on the overall inflation. The inflation in housing is also likely to persist on a few more months. Going ahead, the cushion of declining food prices may be reversed if the MSP is effective. Harvest will be good this time and there can be certain decline in prices that may be overwhelmed in case MSP becomes effective. We are looking at CPI inflation in 5-5.5 per cent range by end March. Given the developments in oil market and currency we expect a rate hike of 25 bps in October policy notwithstanding the sub-4 per cent inflation number.”

Pankaj Murarka, Founder Renaissance Investment Managers.

IIP- "India’s economic growth is accelerating and industrial growth is normalising after sluggish growth for a prolonged period of time. IIP growth at 6.6 per cent for July 18 is showing sharp recovery, part of this is due to low base of last year; yet India’s industrial growth is on a path of steady recovery and the accelerating public investments and industrial capex should accelerate India’s industrial growth going forward."

CPI- "CPI at 3.7 per cent continues to remain within the targeted range and is undershooting the RBI target of 4 per cent. Though, there are latent risk with rising oil prices and depreciating currency, India inflation is likely to remain near the lower end of the RBI targeted range of 4 per cent-6 per cent. Moderate inflation and positive real interest rates bode well for India’s macroeconomic stability. In an environment of emerging Market Risk Off, India with its strong macroeconomic fundamentals emerges as an oasis of calm and resilience."

Dr. S P Sharma, Chief Economicst- Principal Director of Research, PHD Chamber of Commerce & Industry

IIP- Industrial growth at 6.6 per cent supported by a 7 per cent growth in manufacturing and 6.7 per cent in electricity is encouraging. Industry has posted a broad based growth as 20 out of 23 industry groups are in the positive growth of which manufacturing of furniture has shown a whopping 43 per cent growth. A high double digit growth of 14.4 per cent in the consumer durables is an indicative of strengthened demand scenario particularly in the rural Indian which would go a long way to strengthen further the overall economic growth. Growth of infrastructure/construction goods at 8.4 per cent is inspiring and indicating revival of investments in this sector. Going ahead, industrial growth is expected to be strengthened further in view of the coming festive demand.

CPI- The continuous fall in CPI inflation is a visible outcome of the various reforms undertaken by the present government in the agri and food sector. Food and beverages inflation at less than 1 per cent is indicating an improved supply chain in the food economy and agriculture infrastructure. Going ahead, inflation is expected to be benign vis-à-vis good monsoon behaviour in most of the agrarian states. At this juncture, with a growth rate of 5.6 per cent in agri & allied activities in April-June (Q1) 2018-19 there is a strong need to focus on food processing to mitigate the inflationary scenario in the medium to long run and to strengthen exports in the sector with increased employment opportunities in the agri and rural economy.

Dr. Devendra Kumar Pant, Chief Economist, India Ratings and Research ( Fitch Group)

August 2018 CPI Inflation- August 2018 CPI inflation at 3.69 per cent came in at ten months low. Retail inflation has declined in two consecutive months. This is primarily due to base effect; inflation in June 2018 at 1.46 per cent, lowest in 2012 base series. Retail inflation started inching up from July 2017 and this is leading to decline in retail inflation from July 2018. Consumer food inflation came in at 13 months low at 0.29 per cent, this was primarily due to decline in inflation of fruits (declining from May 2018), deflation in vegetables (second consecutive month) and continued deflation (21 consecutive months) in pulses. Fuel and light inflation at 8.5 per cent was highest in last 60 months. However, other component affected by petroleum products prices – transport and communication – witnessed 60bp decline in inflation in August 2018 over July 2018. Going forward weaker currency and elevated crude oil prices will continue to exert pressure on inflation of these two commodity groups. Core-core (excluding food, fuel& light and transport & communication) has declined two consecutive months and is less than 6 per cent (July 2018: 5.77 per cent and August 2018: 5.65 per cent). The impact of GST started reflecting on retail inflation from July 2017 and this has led to retail inflation from July 2018 declining as the base numbers started reflecting GST impact.

July 2018 IIP- IIP growth at 6.6 per cent in July on the back of 6.9 per cent previous month though is a welcome development, it must be viewed against the back drop of the roll out of GST from 1st July 2017. As a run up to this event industrial production took a beating and destocking took place. Therefore a clearer picture about the strength of the growth momentum of industrial sector would be known August 2018 onwards.  Having said that impetus for IIP growth at the broad based classification level came from manufacturing and electricity and at the use based classification level it came from consumer durables, primary goods and construction goods. Capital and intermediate goods grew in a low single digit. This reaffirms our view we have been repeatedly saying that the momentum witnessed in industrial activities is still not broad based as some of the use based segments continues to show large swings in their monthly growth pattern. For a sustainable industrial output growth, the IIP growth has to be more diffused across the use based segments.         

Aditi Nayar, Principal Economist, ICRA

IIP- The IIP growth print for July 2018 was modestly higher than expected, providing another upside surprise on the back of the robust GDP growth in Q1 FY2019. While mining and electricity posted a sequential dip in growth in July 2018 relative to the previous month, the firming up of manufacturing growth is encouraging. A sequential loss of momentum in capital goods, primary goods and intermediate goods was largely offset by a healthy uptick in consumer durables, consumer non-durables and construction goods. 


The double-digit growth in consumer durables for the second month in a row, benefits from a favourable base effect.  Looking ahead, the GST rate cuts and the upcoming festive season may support the momentum of growth of consumer durables, even as possible price rise related to the currency depreciation and higher commodity prices may curtail demand to an extent.  

An adverse base effect is likely to continue to weigh upon the growth of capital goods in the next few months. The slowdown in growth of coal output, electricity generation and automobile production, as well as an unfavourable base effect, are likely to dampen the IIP growth for August 2018 to 4.5-5 per cent. 

The YoY growth in output of Coal India Limited (CIL) eased sharply to 3.2 per cent in August 2018 from 10.7 per cent in July 2018, reflecting an unfavourable base effect, which is likely to dampen the performance of mining in that month. 

Moreover, data released by the Central Electricity Authority (CEA) indicates that growth of electricity generation moderated to 3.0 per cent in August 2018 from 4.4 per cent in July 2018, led by thermal electricity generation. However, the growth in hydroelectricity generation recorded a considerable uptick to 19.8 per cent in August 2018 from 2.1 per cent in the previous month, benefitting from the improvement in reservoir levels. 

In addition, the data released by the Society of Indian Automobile Manufacturers indicates that the growth in aggregate auto production eased substantially to 6.8 per cent in August 2018 from the healthy 17.1 per cent in July 2018.’

CPI- “The headline CPI inflation for August 2018 was marginally lower than our forecast, led by the drop in food inflation. The moderation in the core inflation to 5.9 per cent in August 2018 was broad-based, which is a positive sign. The base-effect led to a fall in housing inflation to a nine month low in August 2018.

The high frequency data points to a further slackening of the momentum for food prices, which may keep the CPI inflation below 4 per cent in the ongoing month. While the timing of the monsoon rains may not be the ideal distribution for the kharif crops, the replenishment of ground water and reservoirs, which now exceed the peak of 2017, augurs well for the upcoming rabi season.   

However, the looming impact of revised MSPs, surge in crude oil prices and sharp weakening of the INR would push up the inflation prints in H2 FY2019. Headline CPI inflation appears likely to range between 4.6-5.0 per cent in Q4 FY2019.  The dip in the August 2018 CPI inflation below the Monetary Policy Committee’s medium-term target of 4.0 per cent, juxtaposed by the looming inflation risks, the robust GDP growth print for Q1 FY2019 and the continued weakening of the INR, would complicate the next monetary policy decision. 

On balance, the scales appear tipped toward a third consecutive rate hike in the October 2018 policy review, along with a change in stance to withdrawal of accommodation, unless crude oil prices and the INR record an appreciable reversal in the intervening period. However, the decision to hike the repo rate in October 2018 is unlikely to be unanimous.” 

Abhishek Ranjan, Research and Policy Analyst, Ex-LAMP Fellow 

CSO has released CPI-based inflation in August which is 3.69 per cent, the lowest in the past ten months. This fall can be attributed to base effect and falling food prices. Consumer Price Index directly affects the common man. It gives an idea of the prices of goods and services that he actually uses.

Even the CPI rate is well within RBI's inflation rate projection. But as the rupee is falling and crude oil prices are surging, it can affect the low inflation rate in coming times. The spiral effects of the economy can be easily speculated and may be witnessed here. While fuel category in CPI has surged, it is heartening to learn that food prices have stabilized too. Hence, every effort must be taken from the Government side to curb further inflation in the midst of Petrol-Rupee (PR) fiasco.

As per the data released by CSO, IIP has reached to 6.6 per cent in July, which is 0.3 per cent below the previous month meaning industrial output growth has slowed down a bit due to weaker growth in capital goods. However, the Government must keep an eye on this cautiously as the low growth of 1 per cent last year in July and 1.7 per cent (April-July) has contributed to this better picture.

The index is made up of eight industries or manufacturers in the following sectors: Coal, fertilizer, electricity, crude oil, natural gas, refinery products, steel, and cement. IIP covers 682 items drawn from mining (61 items), manufacturing (620 items) & electricity (1 item). While the manufacturing sector has shown a growth from last month to the tune of 0.3 percent, consumer durables recorded jump to 14.4 percentage. Therefore, IIP has stabilized in the past few months mainly due to base effect and must be observed carefully by The Government.


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