Published on 13/09/2017 4:37:18 PM | Source: Choice Broking

IIP rises by 1.2% in July; CPI inflation increases to 3.4% in August - Choice Broking

* IIP grew by 1.2% in July v/s (-)0.2% in June

* Improvement in the factory output was due to the rebuilding of inventories by businesses after the implementation of GST

* Manufacturing activity in July grew by 0.1% (-0.5% in June) with 8 out of 23 classified industries showed positive growth

* Mining grew by 4.8% (0.4% in June) and electricity at 6.5% in July (2.1% in June)

* Investments in economy has declined in July as capital goods sector output reduced by (-)1.0% in July (-6.6% in Jun’17).

* Retail inflation increased to 3.4% in August v/s 2.4% in July on account of high food items’ prices

* CFPI rose to 1.5% in August (-0.4% in July) mainly driven by the higher prices of fruits and vegetables

* CPI inflation is expected to move higher from the current level and thereby eroding the possibility of rate cut by RBI in coming monetary policy


IIP growth rises to 1.2% in July:

Indian industrial production measured by the Index of Industrial Production (IIP) rose by 1.2% in the month of July v/s (-)0.2% in June on the back of restocking by sellers after the implementation of the Goods and Services tax (GST). Manufacturing sector which was declined by (-)0.5% in previous month was revived to 0.1% in July and 8 out of the 23 industry groups in the manufacturing sector have shown positive growth. However the overall IIP growth remained subdued compared to 4.5% expansion recorded in the same month of previous fiscal. Output of mining and electricity sectors at 4.8% and 6.5% in July showed a strong revival compared to 0.4% and 2.1% growth in the previous month. Use based classification, consumer durables sector witnessed contraction of (-)1.3% despite the low base indicating the sluggish demand during the first month of implementation of GST. However, consumer non-durables sector continued to show expansion in demand and in July it grew by 3.4% (4.7% in Jun’17) reflecting improving rural demand. Investments in economy has declined in July as capital goods sector output reduced by (-)1.0% in July (-6.6% in Jun’17). During Apr-Jul’FY18, IIP grew at 1.7% v/s 6.5% in the same period of previous fiscal.


CPI inflation increases to 3.4% in August:

Consumer price index (CPI) or retail inflation increased to 3.4% in the month of August compared to 2.4% in the previous month as food inflation has turned positive after the three months of consecutive prices decline. Consumer Food Price Index (CFPI), which represents 47.3% weight in the index, increased to 1.5% in August (-0.4% in July) mainly driven by the higher prices of fruits and vegetables. Prices of vegetables increased by 6.2% in August after the deflationary trend lasting over a number of past months, mainly due to the high prices of tomatoes and onion. Inflation in fruits also shot up to 5.3% in August from 2.8% in the previous month, while pulsed continued to witness the deflationary trend (-24.4% in Aug’17). Core inflation or inflation excluding food and fuel items, surprisingly rose to 4.5% v/s 3.9% in previous month indicated increase in manufacturing items’ prices following the GST implementation. Inflation in key items include fruits (5.3% in August’17 v/s 2.8% in July’17), cereals (3.9% in August’17 v/s 4.0% in July’17), sugar (7.4% in August’17 v/s 8.3% in July’17), and housing (5.6% in August’17 v/s 4.9% in July’17). Rural area continue to witness higher inflation; retail inflation for rural area reported at 3.3%, lower than the urban areas of 3.4%, while Consumer Food Price Index (CFPI) based inflation recorded at 1.4% for rural area as against 1.7% in urban area in July’17.



Industrial production is likely to revive in the coming months amidst the expectations of revival in overall demand in the economy. Manufacturing PMI reviving to expansionary phase of 51.2 in August v/s 47.9 in the previous month and increase in auto production growth to 13.6% in August (10.8% in July) showed that manufacturing output has improved following the implementation of GST. Consumers non-durable sector continued to witness positive growth showing an improvement in the rural demand, furthermore demand in the economy to get boost from the coming festivals season and rise in new income to farmers post kharif crops harvest. Growth in auto production, rising coal and electricity production, manufacturing PMI at above 50 during August and rebuilding of inventory ahead of festival season all pointed towards a strong revival in factory output going forward. Inflation rose to 5-month high at 3.4% in August mainly driven by increased in food articles prices i.e. vegetables and onion. Though the uneven geographical spread of monsoon and less sowing of kharif crops compared to previous year has raised some concerns on food inflation outlook. Given the waning of favorable base effect, hardening of manufacturing products prices and emergence of key upside risks to food inflation, CPI inflation is expected to move higher from current level and thereby eroding the possibility of rate cut by the RBI in coming monetary policy.


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