CPI, IIP numbers today; heres what analysts expect
The retail inflation in November reached 15-month high, whereas the factory output decelerated in October 2017 to 2.20%.
The Central Statistics Office (CSO) will be presenting India's Consumer Price Index (CPI) inflation data for the month of December 2017, and also the Index of Industrial Production (IIP) numbers for November 2017, any time today.
Both the data in their previous month's performance showed opposite trend with CPI rising to 15-month high and IIP growth decelerating.
CPI or retail inflation in November 2017 stood at 4.88% compared to 1.90% of October 2017, and 2.03% of November 2016.
The CPI inflation, which has been rising for two consecutive month in November, was also higher than market expectations for the third time.
The latest uptick was mostly led by a sharp rise in vegetables inflation, which shot up to a four-year high of 22.5% in Nov’2017 from 7.5% in the preceding month.
Vegetables contributed 90 basis point to the month-on-month (MoM) rise in the headline inflation number.
Analysts at Motilal Oswal stated that excluding vegetables, headline inflation stood much lower at 3.6% compared to preceding months.
Interestingly, the overall CPI inflation came moderately above the core inflation in Nov’17 after remaining below the core-CPI for 14 straight months.
IIP in October 2017, however, stood at 2.2% - nearly half of growth recorded in September 2017 of 4.1% and 4.50% on August 2017.
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Slowdown in IIP was mainly on account of deceleration in manufacturing and mining outputs.
On yearly basis, the manufacturing sector expanded by 2.5%, whereas mining output witnessing a meager of 0.2% growth and the sub-index of electricity generation expanded by 3.2%.
Coming back to the upcoming data of these two indicators, here's what experts have to say.
Consumer Price Index
Firstly, RBI expects inflation to range between 4.3 and 4.7% in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced.
Dhananjay Sinha and Kruti Shah, analysts at Emkay, said, “We expect CPI to increase to 5.2% yoy on an average in Q4FY18 which is much above RBI’s target of 4%.”
Kapil Gupta, Prateek Parekh and Akshay Gattan, analysts at Edelweiss Financial Services said, "We expect the current spike in vegetable prices to persist for another month or so before reversing. However, apart from vegetables, food inflation could track higher owing to broad based imposition of duties on cereals, edible oils, pulses, etc."
On core inflation, the trio at Edelweiss said, "We expect core CPI to move lower owing to GST rate cuts in various FMCG items.”
Sujan Hajra and Pooja Banthia, Economists at Anand Rathi, said, "While supply disruptions are largely transitory, loss of produce due to weather disturbance can exert upward pressures on prices for a prolonged period. High crude prices internationally are pushing fuel prices up and this can have some second-round effects as well."
"The arrival of the kharif crop in the market and less wastage of perishable products in winter generally softens inflation in the second half of the financial year. We expect inflation to move into the 4–4.5% range in coming months and to average well below 4% for the year," the duo at Anand Rathi added.
For December 2017, the State Bank of India (SBI) states that the numbers are expected to remain at elevated level, adding, “We project CPI inflation to come in between 5.0-5.2%.”
Similarly, Indranil Pan and Aditya Vyas, analysts at IDFC Bank, said, "The Headline CPI inflation to remain higher than 5% for the remaining part of FY18 – to end at around 5.2% in March 2018."
IIP or factory output
Upasna Bhardwaj, Madhavi Arora and Suvodeep Rakshit, analysts at Kotak Institutional Equities, said, "Despite the weak IIP print, overall high frequency data have been pointing towards a gradual cyclical recovery."
On IIP data, the analysts at Edelweiss said, "Slowing IIP manufacturing perhaps reflects normalisation from the jump seen in the previous month led by restocking as well as early festive season demand."
Aditi Nayar, Principal Economist at ICRA, said, "The early indicators for industrial production in the organised sectors in November 2017 provide mixed signals, with a deterioration in pace of YoY growth of output of Coal India Limited and electricity generation, but a sharp improvement in the expansion of automobile production."
Despite the unfavourable base effect, Nayar said, "We expect the IIP growth to record an uptick in the just-concluded month relative to the initial print of 2.2% for October 2017. Subsequently, the favourable base effect related to the temporary slowdown in activity after demonetisation, is likely to boost volume growth in a variety of sectors in the remainder of FY2018."
Overall, Edelweiss stated that the IIP readings would pick up over next few months helped by continued recovery from disruptions, especially in labour-intensive sectors and supportive base effect. Trend in government spending (given mounting fiscal challenges) will be important to monitor.
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