IIP and CPI Inflation - Disappointing streak continues - Angel Broking

The Index of Industrial Production (IIP) for October 2013 disappointed by contracting 1.8%, and at the same time the Consumer Price Index (CPI) inflation data came as a major negative surprise at 11.2% for November 2013.

The 1.8% decline in industrial output for October 2013 compares with growth of 2.0% in the previous month and 8.4% in October 2012.

The continued weakness in the demand environment is reflected in the contraction of consumer durables production for the eleventh straight month.

The steep decline of 12.0% in consumer durables production has weighed on the overall index by as much as 200bp.

On a cumulative basis during April - October 2013, the IIP reported a flat performance as compared to a modest growth of 1.2% in the corresponding period of the previous year, owing to dismal performance on the investment as well as consumption side.

The CPI inflation during November 2013, at 11.2%, touched an all-time high for the new series (since January 2012) as compared to 10.2% in October 2013, largely owing to elevated food inflation.

We expect the RBI to hike its policy rate by 25bp in the upcoming policy review on December 18 to continue maintaining a hawkish stance on inflationary pressures and contain inflation expectations.

Source : Equity Bulls

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