SBI: February IIP numbers may touch double-digit

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Following the softening of consumer price index (CPI) inflation and a 7.5 percent hike in the Index of Industrial Production (IIP) numbers, the State Bank of India opined that the latter may touch double-digit figures in February this year. In a report authored by SBI Group Chief Economic Adviser, Dr. Soumya Kanti Ghosh, the state-owned lender said the 7.5 percent jump was due to steep growth in manufacturing and electricity.

Talking about the dip in retail inflation, Ghosh, in his report, projected that CPI inflation in March would hover around the same range. 'As expected, CPI inflation eased to 4.44 percent in February 2018, compared to 5.07 percent in the previous month, with all the components witnessing a decline in prices except for health, clothing and footwear, transport and communication. Signs of a thaw in rural demand were visible with rural CPI crashing by 84 basis points from the earlier month,' the report stated.

However, the SBI noted that with March CPI around 4.4-4.5 percent, the Q4 actual CPI numbers could undershoot the Reserve Bank of India's (RBI) projections of 5.1 percent for the quarter by around 40-50 bps. 'If conditions remain the same, RBI inflation projection for FY19 at 5.1-5.6 percent for the first half and 4.5-4.6 percent for the second half will be undershot by 40-50 bps for the next fiscal as well, despite minimum support price (MSP) implementation, as the central bank's studies show that MSP implementation does not lead to significant increase in food prices,' the SBI said.

With a fall in vegetable prices and recent financial market developments, the report highlighted that a 'Pandora's Box' has been opened for the RBI, awaiting its response. However, the SBI in its report stated that one shortcoming of inflation targeting is that it may neglect important information about the build-up of financial imbalances, given that these developments do not materialise rapidly into consumer price pressures.

'The surge on the yield on the 10-Year Government Security (G-sec) during Q3 FY18 has impacted the mark-to-market (MTM) losses for banks on their investment portfolios during Q3 FY18. This will pose further risk to financial stability,' it added. Data released by the Ministry of Statistics and Programme Implementation suggested that India's retail inflation had eased to 4.44 percent in February, from January's 5.07 percent.

The general index for the month of January 2018 stood at 132.3, thus registering a 7.5 percent growth as compared to January 2017. Also, the cumulative growth for the period April - January 2017-18 over the corresponding period of the previous year was 4.1 percent.

Meanwhile, Economic Affairs Secretary Subhash Chandra Garg opined that given the increase in IIP numbers, industrial growth would henceforth be 'strong and comprehensive now.' 'Consumer Price Index-based inflation moderates further in February. From 5.1 percent in January it comes down to 4.4 percent. Food Price Index part of CPI also declines from 4.7 to 3.3 percent. Strong IIP growth of 7.5 percent in January; capital goods grow by 14.6 percent; manufacturing at 8.7 percent; infrastructure/construction goods at 6.8 percent. Industrial growth is strong and comprehensive now,' he tweeted.

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