By Priya Saraff
The Consumer Price Index (CPI) and the Index of Industrial Production (IIP) released their data for January 2018 and December 2017 respectively on February 12, 2018. This article analyses the numbers with respect to the bigger scheme of things.
The indices
The CPI measures the changes in the price level of consumer goods against a base year. For the recently released data, 2012 was taken as the base year. The index itself was a result of complicated calculations, taking into account various segments of goods such as food and beverages, clothing and footwear, housing, fuel and light, and so on.
The IIP shows the industrial production for a given time period and 2011-12 was taken as the base year for the IIP calculations. The index measured multiple items under different categories. A sector-wise classification had the categories of manufacturing, mining, and electricity generation. Use-based classification divided the IIP into primary goods, capital goods, intermediate goods, infrastructure goods, consumer durables, and non-consumer durables.
The previous numbers
For December 2017, the CPI reached a ’17-month high’ of 5.21 percent, ahead of 4.88 percent in November and 3.41 percent for the same time last year. The surge was seen due to the increase in house rents, fuel and vegetable prices. The food inflation stood out especially. If counted out, the inflation for the month would have fallen to 3.7 percent.
The IIP for November 2017 was at 8.4 percent, a spike from the previous months and perhaps, a possible sign of recovery. Among the three basic sectors, manufacturing was the driving force, which showed a growth of 10.2 percent. Of the 23 industries taken into consideration under manufacturing, 15 of them recorded positive growth.
The predictions
Experts were convinced that the CPI would stay high in January 2018, hovering around 5.0 percent due to the rising food and oil prices. A possible base effect (January 2017 retail inflation was at 2.89 percent) could also come into play. Experts believed that the figures would be around 5.0 percent for the first half of 2018.
The IIP was similarly expected to stay strong due to the base effect. Not to mention the sectors like automobiles and metals had been doing well. This did not mean, however, that a figure like 8.4 percent would be sustained. The number was predicted to slip to around 6.0 percent for December 2017.
The outcome
The IIP for December 2017 stood at 7.1 percent and the CPI for January 2018 stood at 5.07 percent. The manufacturing sector grew by 8.4 percent, electricity by 4.4 percent and mining by 1.2 percent. Morgan Stanley pointed out that the manufacturing Purchase Managers’ Index (PMI) and higher production of automobiles had pushed the manufacturing growth.
The capital goods category, acting as an indicator for investments, showed a sharp increase of 16.4 percent. The IIP data stood as a testimony to the fact that the manufacturing sector was indeed growing. The slightly lower inflation was a result of food inflation dipping to 4.58 percent in January from 4.85 percent at the end of last year.
High inflation rate had the Reserve Bank of India (RBI) weary, but interest rates remained unchanged due to the broader optimism of recovery. With growing investment demand and exports, the RBI had estimated the economic growth rate to be at 7.2 percent, which meant that just like the CPI and the IIP, the future may be looking up.
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