Weekly Economic Update

In the local economic news, while the Index of Industrial Production (IIP) grew an impressive 22.4 per cent in March 2021 compared to a year ago, economists think that this reading could be a one-off as the year-ago period was impacted by the national lockdown. After contracting by 0.87 per cent and 3.4 per cent YoY in January & February, the output surge must be seen in the context of very low output in March last year. The positive thing is the fact that March 2021 has been above February 2020 levels in most cases, indicating the current economic recovery.   

Another good piece of economic news was retail inflation for April, which came in with a reading of 4.29 per cent for the month, a decrease from the 5.52 per cent witnessed in March. The decrease in inflation was mainly driven by a lower increase (2.02 per cent in April vs 4.87 per cent in March) in food prices during the month. However, inflation is likely to rise during the first half of FY22 with RBI’s Monetary Policy Committee raising its inflation forecast to a level of 5.2 per cent during this period.  

On the policy front, the government approved Rs 18,100 crore production-linked incentive (PLI) scheme for the manufacture of advanced chemistry cell (ACC) batteries. The move is expected to attract foreign and domestic investment of Rs 45,000 crore according to Information & Broadcasting Minister Prakash Javadekar. The increased production of ACCs will drive more demand for electrical vehicles. Some estimates are noting that there could be a net savings of Rs 2 to 2.5 lakh crore on account of oil import reduction bills as electric vehicles enter the mainstream.  

In the US, inflation increased at its fastest pace since 2008. April's consumer price index rose 4.2 per cent in April from a year-ago period, ahead of expectations for a 3.6 per cent increase. Interestingly, the MoM price gain was 0.8 per cent vs expectations for a 0.2 per cent increase. The core CPI, which excludes the effects of volatile food & energy prices, increased 3 per cent from the year-ago period. US central bank officials have repeatedly noted that the recent price increase is likely to be transitory. They have also continued their commitment to stimulative monetary policy for the rest of 2021 as well as into 2022.