IIP, CPI data likely to show improvement

6.3% growth in core sector suggests IIP logged faster growth in Oct

Estimates of Index of Industrial Production (IIP) and the consumer price index (CPI), which are to be released later today, are likely to bring cheer, with analysts expecting IIP to grow at a faster pace and inflation to moderate further. 

According to ZyFin Research, industrial activity will expand in October, with the monsoon recording a smaller-than-expected deficit, strong August data for the eight core sector industries and the recovery in the US economy.

The core sector, which accounts for roughly 37% of IIP, grew at 6.3% in the month of October, suggesting that IIP will grow at a faster pace. IIP in the month of September grew at 2.5% after weak growth in the months of July and August.

An uptick in growth is expected in all three segments of the index. Part of the expected rise in manufacturing, which accounts for over 75% of the index, is attributed to the base effect as the segment had contracted 1.3% in October last year. 

Core sector data also showed a sharp uptick in electricity generation. The sector grew at 13.2% after slowing down to 3.9% in the month of September. 

But concerns remain. While capital goods, a proxy for investment demand, had grown at 11.6% in September after contracting in the previous months, it remains extremely volatile. Further, the consumer goods segment has contracted in 11 of the last 12 months suggesting that demand continues to remain weak. 

Retail inflation is likely to moderate further owing to the fall in commodity prices and due to the base effect. CPI had fallen from 6.46% in September to 5.52% in October. But economists expect this moderation to reverse early next year due to the base effect.