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Rise in IIP and steady CPI signals improvement

Research Digest | June 26, 2019

The Industrial Output for the month of April saw a rebound after months of underperformance. IIP growth of 3.4% for the month of April is a 5 months high figure.

The improvement in the electricity generation and mining activity at 6.0% and 5.1% has propelled the IIP to grow at 3.4%. Manufacturing growth also grew at 2.8% after 2 months of negative growth.

As per the use based classification the capital goods growth came in at 2.5% despite the weak auto sector demand and sales condition.

Primary and intermediate goods too witnessed 5.2% and 1% growth rates whereas the construction goods growth slowed down to 1.7%. Steady growth rates were also visible in consumer durables and consumer non-durables at 2.4 and 5.2%

Only 14 out of the 23 manufacturing industries witnessed growth in the current month.

Manufacturing of paper products and fabricated materials saw negative growths at -12.3% and -9.6% respectively. Printing of recorded media and food products saw boosted growth at 16.3 and 10.9% respectively.

Consumer Price Index for the month of May 2019 edged up marginally to 3.05% as compared to 2.92% a month ago.

The rise in the food prices has helped the CPI to inch up higher. The food price index grew at 1.83% in May as opposed to 1.10% in April 2019.

Also the inflation has been largely suppressed with still deflationary trends in fruits at -5.17% . The fall in global crude prices also subdued the fuel and light inflation at just 2.48%.

Urban inflation soared to 4.51 percent against rural inflation of mere 1.86 %. The growth has been largely in urban inflation as rural inflation has remained in the same zone.


The IIP for the next two months is poised to be under the 4% level with the effects of rate cut showing up in rise in spending in consumer durables and non-durables.

Consumer Price Index inching upwards shows a rise in the food inflation which was clearly incoming with the delayed and monsoon in most parts of the country. The trajectory for the next couple of months seems to be below 4% with rise in food inflation but moderation in the headline inflation.

With the gradual improvement in the CPI and steady industrial growth the RBI`s August rate cut will be dependent on the government`s fiscal policies in the budget in July 2019.

Exhibit 1: Index of Industrial production

   Index of Industrial Production saw a positive upside in April 2019.

Exhibit 2: Sectoral IIP

                                                     When we compare the sectoral IIP the growth was led by mining and electricity generation.

Exhibit 3: Consumer Price Index

                                                                            CPI for the month of May rose to 3.05% from 2.92%.

The recent downside risks to the the RBI`s inflation projection include irregular monsoon and global trade tensions. The cooling core inflation bodes well for the economy as it will help to adjust the rising the food inflation in the country.

Exhibit 4: Core & Headline Inflation

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