Inflation

There are multiple reasons which can cause inflation in an economy. This includes excess
demand in an economy, increased government spending, hoarding, and increased exports. It
can also be due to non-economic factors such as floods, droughts, etc. As of India now, the
current inflation can be attributed to the supply chain disruptions, the Russia-Ukraine war,
increased oil prices, and more. The CPI or the Consumer price inflation basket is used to
calculate inflation. This is further divided into food, shelter, household operations,
furnishings and equipment, clothing and footwear, transportation, health, and personal care,
recreation, etc. There is often a gap between the CPI and WPI. This gap can be attributed to
non-food inflation. The wide gap between WPI and CPI is due to the price pressures on the
input side. If there is a rise in the food prices, the CPI can increase whereas the WPI can
remain the same. Similarly, an increase in the price of manufactured goods can cause an
increase in the WPI, without affecting the CPI.

Stagflation can be said to be a situation where there is high inflation with a low growth rate.
As per certain sources, India seems to be free from the risk of stagflation. Even with the
world on the brink of stagflation, India seems to be somewhat safe from the same.

While India is struggling with inflation, various other countries are also seen battling with the
same. The US CPI is seen to be more than India for the last seven months. As of now, the
CPI of India remained above its upper limit of 6%. Core inflation also remained close to or
above 6% and non-food inflation at 7%. The WPI also came up to double digits. In
comparison to this, the inflation in the United States remains at 8.5% and in the UK, the
inflation hit 9%.

IIP analysis

Financial Year 2021-22

Month Mar Feb Jan Dec Nov Oct Sept Aug Jul Jun May Apr
s 2022 2022 2022 2021 202 202 2021 2021 2021 2021 2021 2021
1 1
Indices 148. 131. 139. 138. 128 135 129. 132. 131. 122. 115. 126.
8 8 3 8 5 4 5 8 1 1

Year on Year analysis:

IIP increased 7.1% year on year in April 2022. It rose upwards 2.2% and beat the expected
5.1 rises. This was the strongest rise since August 2021. In March 2022, India's industrial
production increased 1.9 percent year on year, up from a downwardly revised 1.5 percent
increase the previous month and surpassing market estimates of 1.7 percent growth.
Electricity output increased at a higher rate (6.1 percent vs. 4.5 percent in February) and

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manufacturing output increased at a faster rate (0.9 percent vs. 0.5 percent), while mining
output decreased (4 percent vs 4.5 percent). Industrial output increased 12.5 percent on a
monthly basis, compared to a 4.9 percent drop the previous month. Production increased 11.3
percent year over year in the April-March period of the 2021-22 year.

Comparative analysis –

March 2022 – Feb 2022

The IIP increased in March 2021 at 24.4%. The manufacturing sector grew 0.9% and the
mining output rose 4%. The power generation in this month also increased by 6.1%.
Compared to the previous month, the IIP increased a 1.9%.

Feb 2022 – Jan 2022

The mining industry rose by 4.5% and electricity generation also grew at 4.4%. The
manufacturing sector expanded by 0.8%. The output shrank by a sharp 5.5%.

Jan 2022 – Dec 2021

Despite the Omicron variant, the IIP grew by 1.32%. This is an improvement from the 0.7%
annual growth in December. The capital goods sector contracted by 1.39% and the
infrastructure goods sectors had a growth of 5.4%.

Dec 2021 – Nov 2021

The IIP grew at 0.4% compared to the previous year and the IIP for mining, manufacturing
and electricity sectors were at 120.3, 138.8, and 162.5 respectively. This was considerably
more than the previous month.

Nov 2021 – Oct 2021

Compared to October, the IIP for Mining, Manufacturing, and Electricity sectors stood at
111.9, 129.6, and 147.9 respectively. The indices for consumer durables and non-consumer
durables stood at 106.7 and 150.3 respectively for the month of November 2021.

Oct 2021 – Sept 2021

The indices stood at 109.7 for the mining sector and 134.7 for the manufacturing sector. The
indices of the primary goods was at 128.5 and that for capital foods was 90.3.

Sept 2021 – August 2021

The IIP for September rose by 3.1% compared last year. The domestic mining output also
grew by 8.6% while manufacturing sector grew by 2.7%. The electricity generation also rose
by 0.9%.

Aug 2021 – July 2021

The indices for the for Mining, Manufacturing and Electricity sectors for the month of
August stood at 103.8, 130.2 and 188.7 respectively. For primary goods, it was at 127.5 and
for capital goods it was at 142.7.

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 July 2021 – June 2021
The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for
the month of July 2021 stand at 104.6, 130.9 and 184.7 respectively. Further, the indices for
Consumer durables and Consumer non-durables stand at 119.5 and 146.6 respectively for the
month of July 2021. Compared to June, the mining production increased from 85.7 to 87.5.
Compared to the previous year the growth for the mining sector was 19.5%.

June 2021 – May 2021

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for
the month of June 2021 stand at 105.5, 121.0 and 169.1 respectively. Further, the indices for
Consumer durables and Consumer non-durables stand at 101.7 and 140.8 respectively for the
month of June 2021. Compared to the previous month, there has been a fall in the mining
sector whereas there has been an increase in the manufacturing and the electricity generation.

May 2021 – April 2021

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for
the month of May 2021 stand at 108.0, 113.5 and 161.9 respectively. It was 122.7 for Primary
Goods, 65.6 for Capital Goods, 129.9 for Intermediate Goods and 129.8 for Infrastructure/
Construction Goods. Compared to the previous month of April, the mining sector have
increased considerably whereas there has been a fall in the electricity and manufacturing
sector production.

PMI

Financial Year 2021-22

Months Mar Feb Jan Dec Nov Oct Sept Aug Jul Jun May Apr
202 202 202 202 202 202 202 202 202 202 202 202
2 2 2 1 1 1 1 1 1 1 1 1
Composit 54.3 53.5 53 56.4 59.2 58.7 55.3 55.4 49.2 43.1 48.1 55.4
e PMI

Comparative analysis

March 2022 – Feb 2022

The PMI for March stood at 54.3 which indicated that there was an overall increase compared
to the previous month. A strong expansion is indicated with manufacturers signalling a
sharper increase than the service providers. The growth had slowed in manufacturers but had
increased in the service providers.

Feb 2022 – Jan 2022

After declining for three consecutive months due to the removal of restrictions on contact-
intensive industries as the third wave of the pandemic subsided, India's services activity only

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slightly increased in February. The PMI for services rose from 51.8 and had improved after
the Omicron variant. There was some dampening in the growth due to competitive pressures,
COVID 19 and higher prices.

Jan 2022 – Dec 2021

The composite PMI fell from 56.4 in December to 53.0 in January. The closer movement to
the 50-mark indicated that there was a slowdown in the business activity from the previous
month. The services PMI dropped from 55.5 in December to 51.5 in January as a result of
weaker growth in new orders and output as well as declining employment levels. In addition,
the manufacturing sector's PMI fell from 55.5 in December to 54.0 in January as a result of
output increases and a four-month low in new orders. At the beginning of the year, a fresh
wave of Covid-19 cases was reported, which was regarded as a major drag on both the
services and industrial sectors.

Dec 2021 – Nov 2021

PMI decreased from 59.2 in November to 56.4 in December. As a consequence, the PMI
increased its distance from the 50-threshold, indicating a slower increase in business activity
than the previous month. As weaker foreign demand held back growth in new orders and
output, the services PMI dropped from 58.1 in November to 55.5 in December. In addition,
the manufacturing sector's PMI dropped from 57.6 in November to 55.5 in December as a
result of slower increases in output and new orders, whereas headcounts barely changed.

Nov 2021 – Oct 2021

From 58.7 in October, the composite PMI increased to 59.2 in November. Consequently, the
PMI increased its distance from the 50-threshold and showed a rise in business activity from
the previous month. The services PMI fell marginally from 58.4 in October to 58.1 in
November as the sector's continued support was provided by output growth and new orders
that persisted. However, the rate of growth in new orders in November was slowed down by a
decline in overseas demand. In addition, on the manufacturing front, the PMI rose from
October's 55.9 to 57.6 in November thanks to more robust increases in output and new
orders, but headcounts only slightly increased.

Oct 2021 – Sept 2021

The composite PMI increased considerably from the previous month. While this remains,
faster losses in output, new orders, and employment were essentially reflected in the headline
print. Additionally, supplier delivery times grew more slowly than they did in September.
The readings for medium-sized and small businesses were significantly below the 50-
threshold, with only the PMI of large organizations remaining in the expansionary zone. Due
to steeper decreases in employment and purchasing activity, the non-Manufacturing PMI
dropped from 53.2 in September to 52.4 in October. When examining each industry
separately, the construction and services sectors both suffered a decline. The recurrence of
Covid-19 cases, power outages, high input costs, and environmental restrictions are likely
causes. 

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Sept 2021 – August 2021
The composite PMI increased from 55.3 in September to 58.7 in October. As a result, the
PMI increased its distance from the 50-threshold, suggesting an increase in business activity
from the previous month. The services PMI increased from 55.2 in September to 58.4 in
October as new orders and production grew more quickly. In addition, the manufacturing
sector's PMI rose from 53.7 in September to 55.9 in October as a result of stronger increases
in output and new orders, but headcounts decreased. From September, businesses' expenses
increased significantly, which survey respondents primarily attributed to rising gasoline,
material, retail, staffing, and transportation prices.

Aug 2021 – July 2021

PMI increased from 49.2 in July to 55.4 in August. The PMI increased beyond the 50-
threshold as a result, signalling an increase in business activity from the previous month. As
new orders and output climbed significantly, the services PMI increased to 56.7 in August
from 45.4 the previous month. Nevertheless, due to weaker growth in output, new orders, and
generally static headcounts, the manufacturing sector's PMI dropped from 55.3 in July to 52.3
in August. The output prognosis for the next year was still favorable, but optimism waned
due to concerns about the pandemic's long-term effects and the detrimental effects of
increased expenses on businesses' finances in addition to a lack of pricing power.

July 2021 – June 2021

From 43.1 in June to 49.2 in July, the PMI climbed. The PMI, therefore, continued to be
below the 50-threshold, suggesting a decline in business activity from the previous month.
The services PMI increased in July compared to the previous month as output and new orders
shrank more slowly. Similarly, the manufacturing PMI increased from 48.1 in June to 55.3 in
July as a result of higher output, new orders, and headcounts. The COVID-19 climate kept
having an impact on how well the service sector, which is so important to the Indian
economy, performed.

June 2021 – May 2021

The PMI fell from 48.1 in May to 23.1 in June. It moved further down the threshold
indicating that there was a decrease in business activity the previous month. The services
PMI decreased from 46.1 to 41.2 with the ongoing spread of the COVID 19 pandemic. There
were also stricter restrictions on employment, new order, and outputs. The manufacturing
PMI also fell due to the flagging output, new orders, etc.

May 2021 – April 2021

The composite PMI fell in May as compared to April and it moved below the threshold limits
suggesting a decrease in business activity from the previous month. The services PMI also
fell due to the increased pandemic cases and the subsequent restrictions. The services
industry suffered during this period whereas the manufacturing industry managed to keep
itself at 50.8.

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