IIP highlights :
- Provisional estimate of September IIP is 2%.
- Major contributors to the positive IIP estimate are power and mining sectors.
- Manufacturing sector has grown by 0.6%
- Capital goods sector declined by 6.8%.
CPI highlights :
- CPI for October stands at 10.09%.
- 45.67% increase in vegetable prices YoY.
- Rural inflation at 10.11%. Urban inflation at 10.2%.
- CPI in double digits after 7 months.
- Rise in prices of vegetables and fruits main contributor to high inflation figure.
The Interpretation :
The IIP figure for September is a positive, though it does not meet the highly expected figure of 3.5% and over. Though the manufacturing sector has not contributed much to the overall figure, it should be said that there was positive growth nevertheless. It is still too early to say whether this recovery will continue in the months to come, but in the overall picture, the IIP figures should not be very worrisome.The double digit CPI figures are on the other hand, cause of concern. The whole of RBI’s policy in the recent past has revolved around the objective of containing inflation. And yet, the inflation has jumped to double digit figures in October. In the light of the above it will be very difficult for the RBI to keep interest rates unchanged in the monetary policy review next month.
The fact that the major contributor to the inflation figures are vegetables and fruits is also worrisome. The hopes that inflation will moderate on account of good monsoons have not come true.
It seems that the tough policy measures by the RBI have so far failed to curtail inflation and the regulator may look toward further toughening measures displeasing the economy in the days to come. The markets which are already under pressure for the past few days may react more negatively on account of the high inflation figures and anticipating tough moves by the RBI.