IIP quickens to 7.5%, inflation softens

IIP quickens to 7.5%, inflation softens

Context

Industrial activity accelerated in January to 7.5% on the back of strong manufacturing growth and a rebound in the consumer durables sector, according to official data released on Monday

Other observations

Inflation

• Retail inflation, as measured by the Consumer Price Index (CPI), eased to 4.4% in February, following two months of figures above 5%
• Inflation as measured by the CPI slowed to 4.44% in February from 5.07% in January, mostly due to easing food and fuel prices
• Inflation in the food and beverages segment slowed to 3.38% in February from 4.58% in the previous month
• Inflation in the fuel and light segment slowed to 6.8% from 7.73% over the same period

IIP

• Growth in the Index of Industrial Production quickened to 7.5% in January from 7.07% in December
  • The manufacturing sector saw growth quickening marginally to 8.7% in January from 8.4% in the previous month
• Electricity also saw growth accelerating to 7.6% from 4.43% in December
• Primary goods saw growth accelerating to 5.8% in January from 3.73% in December
• The capital goods sector continued to witness strong growth of 14.6% in January, although this was lower than the 16.44% seen in the previous month
• Growth in infrastructure and construction quickened slightly to 6.8% in January from 6.68% in the previous month
• The consumer durables sector saw growth accelerating sharply to 8% from 0.86% over the same period

PMI weakened

• The only concern is that the Purchasing Managers’ Index data for February showed a weakening

Why the easing in indices?

This easing appears to have come largely on the back of a slowdown in the food price inflation. Whether this easing sustains or not depends on multiple factors, including the agricultural production as well as the threat of rising crude oil prices

Impact

It is expected that RBI will not deviate from status quo due to inflationary risks

What is IIP?

The index of Industrial Production (IIP) conveys the status of production in the industrial sector of an economy in a given period of time, in comparison with a fixed reference point in the past.  IIP shows the change in production volume in major industrial subsectors like manufacturing, mining and electricity

• Computed and published by: Central Statistical Organisation (CSO)
• Duration: Monthly basis

What is PMI?

It is an indicator of the economic health and investor sentiments about the manufacturing sector (there is services PMI as well)

• Variables used in PMI’s construction: The variables used to construct India’s PMI are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers Delivery Times, Stocks of Purchases and Stocks of Finished Goods. Similar variables (but less in number) are used for the construction of services PMI
• Published by: For India, the PMI Data is published by Japanese firm Nikkei
• Compiled and constructed by: Markit Economics

What does PMI actually reflect?

It shows the investor sentiment in an economy’s manufacturing sector

IIP vs PMI

In terms of composition, we can say the PMI is a sentiment tracking index. On the other hand, the Index of Industrial Production indicates changes in production volume or output