Home / Business / Money / July IIP may slip to 1.7%; Aug CPI seen at 7.7%: Poll

July IIP may slip to 1.7%; Aug CPI seen at 7.7%: Poll

Index of industrial production (IIP) for July is likely to fall to 1.7 percent while the consumer price index (CPI) for August may soften to 7.7 percent, says a CNBC-TV18 poll. Both the macro-economic data points will be released post market hours today and between, the CPI will be crucially watched even from a bond market perspective.

The estimate for July IIP is that it is going to see a growth of 1.7 percent versus 3.4 percent on a month-on-month (M-o-M) basis. It is expected to scale down from what was seen for entire Q1 FY15 and this will eventually help the industry’s growth in Q1 of gross domestic product (GDP) as well. The range for IIP, it is expected to be anywhere between 0.5 percent and 3 percent, says the poll. May IIP was revised higher to 5.5 percent versus 4.7 percent earlier.

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IIP @ 1.7 percent? Key factors to watch

One is that there will be a base effect on a year-on-year (Y-o-Y) basis that will effect the IIP growth. It grew at 2.8 percent in July 2013. That is a little bit of a base effect not too much if in case there was substantial growth, it would still surpass the base effect.

Secondly, the core sector growth which is 38 percent of IIP was quite weak. It came in at 2.7 percent versus 7.3 percent on a M-o-M basis. So, it is expected that the core sector data will possibly result in a lower IIP. The core sector data has not been following what the IIP has been indicating. For example, last time it grew at 7 percent, but the IIP came in at 3.4 percent.

Two factors to watch out for will be any sort of growth in the capital goods segment because that will be a reflection of project announcements and implementation by the government. The consumer goods data also needs to be watched as last time it fell quite significantly, which is indicative of what consumption is doing at this point in time in the economy. If growth in consumer durables doesn’t pick up then that will be an indication of consumption still not picking up substantially in the economy.

Why CPI may soften

CPI for July stood close to 8 percent. The estimate is 7.7 percent versus 7.96 percent, which is a still flattish figure, but lesser on a M-o-M basis. The range for the CPI is anywhere between 7.28 percent and 8.1 percent. Watch out for the revisions because the June CPI last time around was revised higher to 7.46 versus 7.31 percent, so the entire range has shifted higher as well.

There could be a softening because of the base effect because it was 9.5 percent in August 2013 versus 9.6 percent in July 2013. So, this favourable base effect is going to continue till November whereas for example November 2013 the CPI was 11.2 percent.

For the core inflation data, the range is wide anywhere between 6.9 to 7.3 percent and this compares to 7.42 percent on month on month basis. Again, it will be benefited by a base effect because core had jumped to 8.17 percent in August 2013.

Food inflation prices are expected to soften on a month-on-month basis, but it generally shows with a lagged effect on CPI because its retail as opposed to WPI, which is wholesale. So it will show in wholesale first and CPI later, that is what most of the economists are working with. Food inflation could tame down in terms of an escalation that we could see, but it is difficult to call at this point in time considering that food inflation had spiked up considerably in the previous month because of monsoon deficiency. So, that will be an important contributor to CPI if in case it has to even surpass any effect of base effects this time.


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