InvestorQ : Can you share with me some major highlights of the inflation and IIP announcement on 12-Oct and what it means?
vaishnavi mhatre made post

Can you share with me some major highlights of the inflation and IIP announcement on 12-Oct and what it means?

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vidhya Laxmi answered.
2 months ago
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Here are some of the major highlights of the macro announcements on inflation and IIP numbers announced on 12th October.

a) Retail or CPI inflation for the month of Sep-21 has fallen to a 5-month low level of 4.35%. Inflation has now fallen 195 bps from 6.40% in the month of May 2021.

b) The main reason for the fall in inflation was food inflation which fell from 3.11% to 0.68% as most food items became cheaper after a record Kharif output.

c) However, the core inflation continued to stay elevated at 5.77%, which is explained by the fact that the fall in inflation in September is largely driven by food.

d) Fuel inflation at above 13% and Transport inflation above 9.5% are still the big risks and with crude above $84/bbl, that is not likely to go away so soon. (Now for IIP).

e) IIP or the industrial of industrial production growth for Aug-21 came in stable at 11.9% as compared to 11.5% in July. IIP is normally announced with 1-month lag.

f) The good news is that the base effect is waning and that just goes to indicate that the growth that you are seeing in August is genuine growth in output.

g) The 2-year IIP growth over pre-COVID levels is finally positive at 3.88% indicating that the IIP has finally overcome the pressures created by COVID and COVID 2.0.

h) Even as high frequency indicators remained positive, manufacturing IIP is yet to catch up with the pace of growth of mining and electricity.

The above highlights have a key message for the RBI. With growth almost back to normal pre-COVID levels, durable growth is unlikely to remain a driving factor. The onus will shift to inflation. From here on, RBI would be more willing to hike repo rates or withdraw the accommodative stance if inflation spikes higher.
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