The negative core Wholesale Price Index (WPI) inflation and de-growth in the Index of Industrial Production (IIP) are a disturbing sign, causing serious concerns about the decelerating economy, according to State Bank of India’s economic research report ‘Ecowrap’.
WPI core inflation, which plunged to negative territory in August 2019, has deteriorated further and declined to a 38-month low to (-) 1.07 per cent in September 2019.
“We believe that core WPI will remain in negative zone for next couple of months and this is bad news for economy as negative core WPI is eventually conveying lack of purchasing power which is a disturbing sign. Simultaneously, core CPI is likely to decline below 4 per cent, indicating weak demand conditions,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
Referring to IIP de-growth (-1.1 per cent in July 2019), the report said this has again caused serious concerns about the decelerating economy. Electricity sector, which had been growing well, has shown a decline for the first time, since the new IIP series were released.
“The impact of insisting on Discoms opening Letters of Credit from August 1 for power purchases is having its expected effect - power demand fell by 1.6 per cent in August and now 4.5 per cent in September. Load-shedding is now back reflecting Discom inefficiencies,” opined Ghosh.
Meanwhile, according to the report, thermal coal imports have climbed up to rose to 61 million tonnes last fiscal and it may go 200 million tonnes in 2019-20.
“Thus, both the Electricity and Mining sector growth will remain weak in coming months. All this augurs for weak IIP prints going forward,” it said.
Referring to the consumer prices was up by 3.99 per cent in September (2019) from last year’s level of 3.70 per cent and month before level of 3.28 per cent, the report said this is the highest CPI (consumer price index) figure since July 2018.
Driven by higher food prices
The spike, up from the August 2019 numbers of 3.28 per cent, is driven by higher food prices. The jump in food and beverages inflation in Rural and Urban areas is primarily driven by jump in vegetable and protein components.
“We believe such a jump is seasonal and though headline inflation has ticked up, there is wide expectation that the prices may soften in a couple of months, once the kharif harvest arrives in the market. Going forward, we expect better supplies on the food front which may ease the pressure on food prices,” the report said.