Consumer Price Index for the month of April, came at 4.29 % quite on the lines expected by many market participants mainly due to the fall in the food inflation and the favourable base effect. This is quite a bit of a pull back from the 5.52% level seen in March. Last year, for the same period, there was lockdown and consequent drop in consumer demand and activity, and this affords the favourable base effect. This time around there is no stringent lockdown and the spirit of the law is to facilitate movement of goods and prevent unnecessary movement of people. Because of this, as things stand at present, the impact of the lockdown is likely to be rather muted. But we need to see the actual numbers for one more month to see the depth of the impact, if any. Food inflation moderated from 4.87% in March to 2.20% in April, as cereals and vegetables saw a substantial fall in prices. Coming to the individual components in the basket of goods, inflationary trend has been visible in Meat & Fish (16.68%), Eggs (10.50%), Oil & Fats (25.91%), and Fruits (9.81%). Cor inflation has come down by 0.50 % from 5.70% to 5.20%.
The RBI policy is accommodative, and the expansionary bias is still continuing with the interbank liquidity at above the Rs.5 Lakh Crs level. The GSAP 1.0 is also on its course to smoothen the government borrowing programme. Due to these reasons, there is no impact these numbers will have on the RBI policy, as the central bank is working with higher projections for the whole year. But that the price level seems to be moderating should ensure greater comfort in terms of future policy formulation. But at the same time the risks to a soft view should not be understated. Stricter lockdowns due to severity of the pandemic could lead to substantial fall in the demand scenario, and at the same time, input price pressures could gradually crop up above the surface with high commodity prices and elevated fuel prices. Brent is likely to stay close to the US$ 67/68 levels per barrel, mainly due to the fact that with the pandemic abating and the summer season arriving people may take to the highways in a big way. The recovery in the US, Europe, and more particularly China, are factors which may keep the prices from falling.
The Index of Industrial Production (IIP) expanded by 22.40 % in March, mainly due to a favourable base effect. The industrial output contracted by 0.90 % in January, 3.60 % in February, after a rise of 1.60 % in December. Manufacturing output had fallen by 22.80 % in last March 2020, and the gain of 25.80 % now should be understood in the correct perspective, as a comparison with 2019 would reveal that there is a moderate deceleration. Therefore, there is not much that can be inferred from these numbers at present. The closure of many industrial units after the second wave of the pandemic and reported job losses close to 7.50 million, and the pandemic, which is yet come under control, could possibly present a different picture over time.
