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Heady concoction of India's Higher Inflation, Higher Growth and Higher Unemployment rate!

Indian Inflation no. in June 23 

India's June CPI increased slightly to 4.81%, from 4.25% in May. This is still within the Reserve Bank of India's (RBI) tolerance band of 2-6%, but it is the highest level since March 2023. The increase in inflation was driven by a rise in vegetable prices, which rose by 19.19% in June. Other food items that saw a rise in prices include cereals (12.7%), pulses (10.5%), and meat and fish (6.9%).

Based on the June inflation number, the RBI may do the following:

  • Keep interest rates unchanged in August. The RBI is likely to keep interest rates unchanged in its next monetary policy review in August, as it will want to assess the impact of the recent rate hikes before taking any further action. However, if inflation continues to rise, the RBI may be forced to raise rates again in September or October.
  • Signal a rate hike in August. The RBI may signal a rate hike in August, even if it does not actually raise rates at that time. This would send a signal to markets that the RBI is serious about containing inflation.
  • Start to tighten monetary policy in the coming months. If inflation continues to rise, the RBI may start to tighten monetary policy in the coming months. This could involve raising interest rates, selling government bonds, or increasing the cash reserve ratio (CRR).

The RBI's decision on what to do will depend on a number of factors, including the pace of inflation, the strength of the economy, and the global economic environment. However, the June inflation number suggests that the RBI may be forced to take action to tighten monetary policy in the coming months.

Here are some additional factors that the RBI will consider when making its decision:

  • The outlook for global inflation.
  • The pace of economic growth in India and unemployment rate in the country.
  • The impact of the fiscal policy of the GOI and the Govt borrowing programme.
  • The reaction of markets and the real economy to any rate hikes.

The RBI will carefully weigh all of these factors before making a decision on what to do. However, the June inflation number suggests that the RBI may be forced to take action to tighten monetary policy in the coming months.

What do May IIP nos. indicate

The Quick Estimates of Index of Industrial Production (IIP) for the month of May 2023 were released on July 12, 2023. The IIP for May 2023 stood at 145.0, an increase of 5.2% from the same month a year ago. This is the highest growth in the IIP since March 2023.

The growth in the IIP was broad-based, with all three major sectors -- mining, manufacturing, and electricity -- registering growth. Mining grew by 6.4%, manufacturing grew by 5.7%, and electricity grew by 0.9%.

The growth in the IIP was driven by a number of factors, including strong domestic demand, rising exports, and increased investment. The government's policies to boost the economy, such as the Production Linked Incentive (PLI) scheme, are also having a positive impact on industrial production.

The IIP data is positive for the Indian economy. It suggests that the economy is on a recovery path and that growth is picking up. However, it is important to note that the IIP is a lagging indicator, so it may take some time for the full impact of the recent economic reforms to be felt.

Unemployment rate :

The unemployment rate in India in June 2023 was 8.45%, according to the Centre for Monitoring Indian Economy (CMIE). This is the highest unemployment rate in India since April 2020. The unemployment rate in urban areas was 7.87%, while the unemployment rate in rural areas was 8.73%.

The high unemployment rate in India is due to a number of factors, including the slowdown in economic growth, the decline in manufacturing jobs, and the seasonal unemployment in rural areas. The government has taken some steps to address the unemployment problem, such as the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), but more needs to be done to create jobs and boost economic growth.

We have a classic case of Growth and Inflation going up and Unemployment rate also going up in Tandem. Does Philips Curve work in Indian Economy?!!

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