IIP at 9 month low, retail inflation at 6 month high

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IIP at 9 month low, retail inflation at 6 month high

  • Retail inflation accelerated to a six-month high of 5.59 percent in December from the previous year, while industrial production growth fell to a nine-month low of 1.4 percent in November, presenting policymakers with a double whammy as they prepare for next year's Budget.

Key Observations

  • Inflation remained within the Reserve Bank of India’s target band (2-6%) for the sixth straight month,
  • The monetary policy committee (MPC) will likely continue with its growth push in its next meeting in February and wait a bit longer for further confirmation of the underlying price pressure in the economy.
  • The global commodity prices, especially that of oil, remain elevated and the US Federal Reserve may quicken the pace of tapering its asset purchases, raising the risks of capital flights from emerging economies.
  • In its statement last month, the MPC had acknowledged that “cost-push pressures from high industrial raw material prices, transportation costs, and global logistics and supply chain bottlenecks continue to impinge on core inflation”.

About Index of Industrial Production (IIP)

  • It is an index which details out the growth of various sectors in an economy such as mining, electricity and manufacturing.
  • The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
  • It is compiled and published monthly by the Central Statistical Organisation (CSO) six weeks after the reference month ends.

What is a core sector?

  • The Eight Core Industries comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP). The eight core industries are: Coal, Crude oil, Natural Gas, Refinery products, fertilizers, steel, cement and electricity.

About Inflation

  • A rise in the general level of prices.The rate of inflation is measured on the basis of price indices which are of two kinds— Wholesale Price Index (WPI) and Consumer Price Index (CPI).

Types of Inflation

  • Low inflation: Such inflation is slow and on predictable lines, which might be called small or gradual.
  • Galloping inflation: This is a ‘very high inflation’ running in the range of double-digit or triple digit (i.e., 20 per cent, 100 per cent or 200 per cent in a year).
  • Hyperinflation: This type of inflation is described as ""massive and rapid,"" with annual rates in the millions or perhaps trillions of dollars.