Recent inflation data suggest the economy might finally be turning the corner. Manufacturing data also suggest that things are improving. The impact on monetary policy could be interesting. The Reserve Bank of India's next policy review on April 1 will be based on these data.
The retail inflation rate as measured by the Consumer Price Index (CPI) dropped to 8.1 per cent on a year-on-year (YoY) basis this February, compared to February 2013. This was the third month of a falling rate of change in CPI and 8.1 per cent is a 25-month low.
The Wholesale Price Index (WPI) was up 4.7 per cent YoY in February, which means the wholesale inflation rate has also dropped below the psychological level of five per cent. However, core WPI inflation (WPI minus food and fuel) was up slightly, at 3.15 per cent in February versus 3 per cent in January. In addition, the Index of Industrial Production (IIP) was positive, albeit barely so, at 0.1 per cent in January 2014 versus January 2013. This was the first positive IIP reading in four months.
Text: Devangshu Datta, Business Standard