Ind-Ra: IIP to Remain Stable, Wholesale Inflation to Moderate

Industrial production in March 2016 is likely to remain close to February 2016 levels and on the price front wholesale price deflation will continue to moderate and retail inflation will remain stable in April 2016, says India Ratings and Research (Ind-Ra). Ind-Ra estimates the Index of Industrial Production (IIP) growth for March 2016 at 1.9% and April 2016 Consumer Price Index (CPI) and Wholesale Price Index (WPI) based inflation at 4.9% and negative 0.4% respectively.

Ind-Ra expects industrial production in March 2016 to get a boost from better performance in the core sectors of the economy. After contracting for three months since November 2015, IIP moved into the positive territory and clocked a growth rate of 2% in February 2016. The eight core industries that comprise around 38% of IIP grew 6.4% yoy in March 2016 as against 5.7% yoy in the previous month. Electricity, which has a weight of 10.3%, led the growth in the core sector with a growth rate of 11.3% in March 2016. Steel production, which has a weight of 6.7%, increased 3.4 % in March 2016 yoy after remaining negative for eight consecutive months. Ind-Ra believes electricity and steel production will drive industrial production in March 2016.

Ind-Ra expects wholesale price deflation to continue despite high prices of pulses and sugar. WPI has been negative for the last 17 months; however deflation is likely to moderate in April 2016. WPI deflation is expected at 0.4% yoy in April 2016 as against 0.9% yoy in the previous month. Pulses inflation, despite moderating from an average increase of 50% between October - February 2016, continued to remain high at 34.4% in March. Sugar inflation rose to 6.2% in March 2016 compared to 4.2% in the previous month. Fuel prices are likely to remain a drag on the wholesale prices. Deflation in the fuel and power component of WPI increased to 8.3% in March 2016 from 6.4% in February 2016. Ind-Ra expects benign oil prices to continue in FY17.

Ind-Ra expects April 2016 retail inflation to remain stable at 4.9% yoy (March 2016: 4.8% yoy, February 2016: 5.3% yoy). Soft oil prices (although Indian crude basket in April 2016 was 9.4% higher than March 2016) will keep retail inflation in check, although price pressures could emerge from food items such as sugar and pulses.

IIP for March and CPI for April is scheduled to be released on 12 May and April WPI is scheduled for release on 16 May 2016.

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