November IIP comes in at -3.2%, Dec CPI rises to 5.6%

India's Index of Industrial Production (IIP) for the month of November has contracted 3.2 percent versus 9.8 percent growth in October, while the consumer price index (CPI) for the month of December has risen to come in at 5.6 percent compared with 5.41 percent reported for the month of November. According to a CNBC-TV18 poll, the consumer price index (CPI) was expected to come in at around 5.5 percent, while consensus was expecting IIP to come down to levels of around 1.8 to 2 percent.The culprit behind the disappointing IIP number is manufacturing, which has contracted by 4.4 percent, electricity has barely grown 0.7 percent, with only mining growing by 2.3 percent. Within manufacturing, consumer non-durables is to be blamed, which has fallen by 4.7 percent. But consumer goods as a whole has seen 1.3 percent growth on the back of durables doing well. Consumer durables has clocked a 12.5 percent growth. Capital goods too has done badly, contracting 25 percent.

However, Sajjid Chinoy, Asia Economics, JPMorgan, says there is no need to get carried away as Diwali months are very difficult to project and predict. The fact that working days were lower in November has had an across the board impact, he explains. But Soumya Kanti Ghosh, Chief Economic Advisor, SBI, is not convinced. He says IIP numbers are much worse than expected and it not on account of the shortened month. He believes there has been persistent weakness and IIP numbers have been irregular.As far as the CPI data is concerned, it has been consecutively hardening for the past four months and December is the fifth such month. It has risen from levels of around 3.7 percent in July of 2015.One of the key reasons for the hardening in CPI is food inflation, which is 46 percent of CPI, and it has come in at 6.4 percent in December against 6.07 percent in November.Prices of pulses has risen by 46 percent, spices 10 percent, oils and fats are 7 percent higher, meat and fish prices have risen by 6.5-7 percent and vegetable prices are higher by 4.6 percent. Rural inflation for the month of December has hardened significantly to 6.32 percent versus 5.95 percent Month-on-Month (MoM), while urban inflation grew marginally to come in at 4.73 percent against 4.71 percent (MoM).Overall services has grown by 3.95 percent. Miscellaneous is up 4 percent, within which, education is up 5.6 percent and health is up 5.5 percent. Housing is up 5.06 percent. Household goods and services has risen 5.2 percent. Chinoy says inflation has come in 20 basis points higher than what he was expecting. However, he adds, there was a lot of volatility in food prices in December, so how much of that got picked up is the question here. But he expects headline CPI to come down slowly over the next couple of months, particularly on back of lower oil prices. He expects CPI for the month of January to come in below 5.5 percent, and then move towards 5 percent — a little above 5 percent — in February.