Retail inflation at 18-month low
Retail inflation dropped to 18 months low at 2.19 per cent. Due to deflation in December 2018, pulses and its products -7.1 per cent, vegetables -16.1 per cent, sugar, and confectionery -9.2 per cent, egg -4.3 per cent etc. were in negative territories. In economics, the decline in the level of the general value of commodities and services is called deflation. Deflation occurs only when the rate of annual inflation falls below zero per cent, which in turn leads to an increase in the real value of the currency so that the buyer can buy more items in the same amount. In this case, inflation reduces the real value of the currency, while deflation increases the real value of the currency.
In December 2018, fuel inflation remained confined to 4.5 per cent due to a lessening of the price of crude oil in the international market. Due to a surge of 9.0 per cent in health and 8.4 per cent in education, core retail inflation increased to 5.73 per cent in December 2018. Core inflation means the change in the price of commodities involved in the basket. It does not include high fluctuations in prices such as food and fuel.
The most amazing aspect of inflation data is the increase in rural health and education inflation, as there is a decline in rural demand in the present time. This may be due to the change in the procedure of collection of data and the upgradation of health services due to the implementation of the Ayushman Bharat Scheme. One reason may be an increase in the prices of medicines. Another surprising aspect of the case is that the cost of education in rural areas has also increased. In such a situation, the Central Statistics Organisation (CSO) should disclose the real reasons by examining the increase in the cost of service in the rural area from October 2018.
Service inflation is increasing faster than commodity inflation
When analysing economic activities, it is common to differentiate between services and commodity. Globally, the inflation of services increases faster than inflation of commodities. Now even in India, such a situation is being seen. Inflation is rising with respect to housing since March 2018 and the commodity remains above the inflation. In December 2018, the difference was 60 BPS. The difference in inflation between goods and services is continuously rising and it has reached 212 BPS.
Differences in retail and wholesale inflation
Wholesale and retail inflation was running simultaneously until October 2017. After that, the difference between the two series was 205 BPS in January 2018. The difference between the two decreased to 9 BPS in May 2018. Later, the difference between these two started to increase again and by December 2018 this increased to 161 BPS. A big reason for this is that the immature market, which is present in all over the country. Prices are declining in the wholesale market, but this trend is not visible in the retail market. The decline in prices in the wholesale market is much faster than the retail market. Demand for goods and services are not increasing
In the second half of the financial year (FY) 2019, the story of demand cannot be called satisfactory. The growth rate of Gross Domestic Product (GDP) in the third quarter was 6.7 per cent, which is not encouraging at all. Automobile sales declined 23 per cent in the fourth quarter of FY 2018. From the fourth quarter of FY 2018 to third quarter of FY 2019, growth was at the rate of 6.7 per cent on the year-on-year basis. In the December quarter of the current financial year, demand for heavy commercial vehicles was also not encouraging. There is also a slow increase in the consumption of oil products. It saw an increase of 9 per cent in the fourth quarter of FY 2018; while in the third quarter of FY 2019, increase in the volume of petroleum products has decreased to 1.8 per cent The GDP figures show a slow increase in personal consumption expenditure. In the second quarter of FY 2019, the private financing expenditure (PFCE) decreased to 5.2 per cent, which was 7.8 per cent in the first half of FY 2019. In this context government spending, expenditure is also not expected too much increase. It is notable that it is natural to see the negative impact of the decline in PFCE on the GDP.
Investment data is also not positive. According to the quarter on quarter (QOQ) figures, there is Degrowth of 13 per cent in investment. Degrowth means to reduce consumption, but not to cut welfare activities. In this context, a significant decline in the investment in electricity and water sector has also been recorded. Pradhan Mantri Asha Scheme has been launched to give fair value to the farmers produce, but under this, the procurement is not being increased. At present, the performance of this scheme is very weak. To help the farmers in this light, there is a need to consider other options.
In order to solve problems of lessee farmers, the NITI Aayog, brought the Model Agricultural Land Act, 2016, which aims to legalize the process of leasing agricultural land, so that banks and financial institutions can provide agricultural loans to lessee farmers. Now in Uttarakhand and Uttar Pradesh, this Act has been given legal form. However, the benefits of this law are still to be seen.
Economic activities are at low level in the third quarter of FY19
According to the Composite Leading Indicator (CLI), the economic activity in the third quarter of FY 2019 has slowed down and the GDP growth in the second half of the fiscal year 2019 is estimated to be below 7 per cent. Significantly, CLI works on 32 leading indicators. The slowdown is seen in the sale of the public vehicle, which is an indicator of urban demand, and sales of commercial vehicles are also low in November 2018. Domestic air passenger traffic has also seen a decline in November 2018.
The cement production is an indicator in the manufacturing activity has increased by 8 per cent in the month of November 2018, which was 18 per cent in the previous month. This is 12 months low on the basis of year-on-year. Further, during the month of November 2018, the Degrowth of 0.4 per cent was seen in IIP manufacturing activity, which is a sign that demand for both consumption and investment in the economy has slowed down.
By-Satish Singh
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