Dearer fruits and vegetables, GST on services, take CPI further up

Consumer price index (CPI)-based inflation rose 100 basis points (bps) to 3.4% in August from 2.4% in July, marking the second month of ascend. Food inflation turned positive as low-base effect waned, and on the back of sharp increase in food and vegetables inflation. The August print at 1.5% marked a turnaround after 3 months of deflation. Inflation in fruits and vegetables surged to 5.9%, quite a turnaround from -5.6% average for the preceding 11 months. But exclude fruits and vegetables, and CPI inflation would be 1.4%, compared with 1.6% in July. Meanwhile, core inflation edged up 10 basis points to 4.4%, again the second consecutive month of rise. This broad increase in core inflation categories reflects the impact of the implementation of the Goods and Services Tax (GST).
 

IIP returns back to positive territory on account of low base

After declining for the first time in four years in June, industrial activity turned positive in July. The Index of Industrial Production (IIP) grew 1.2% in July against -0.17% in June, the month when GST related uncertainties had led to destocking and cutback in production. That said, it would be too early to infer a turnaround in production activity on the basis of positive IIP growth in July as there is also a base effect at play. IIP growth in July 2016 had stood at 4.5%, a sharp slowdown from 8% in June 2016. July’s IIP index is lower than June’s, suggesting slowdown on a sequential basis.