Inflation maintains a rising trend

Steel consumption to grow by 6.1% in 2017.

By Abin Daya

In line with our expectations, CPI inflation inched up in March, though WPI inflation eased a bit. Considering the significant gap between retail and wholesale inflation even now, it remains to be seen whether the former will move up further, despite wholesale inflation coming down.

Indian steel industry seems to have got its mojo back in 2016, and this is expected to continue for the next two years. Steel production and consumption grew by 7.4% and 4.1% respectively, highest amongst all major producers and consumers. We give you a snapshot of what the World Steel Association is forecasting for 2017 and 2018.

Retail inflation

  • In the weekly update for week 11, we had mentioned that we expect CPI inflation to move up, as retail prices catch up with rising input costs
  • As expected, retail inflation increased for the second consecutive month in March 2017 to 3.81% from 3.65% in Feb
  • However, this is still lower than a year back levels at 4.8%
  • While food inflation remained more or less at the same level, inflation in Eggs, Vegetables and Fruits increased from their levels in Feb, while that of Pulses, Sugar & Confectionary and Spices decreased
  • Reflecting the trend in WPI inflation till Feb, inflation in Fuel & Light increased from 3.90% in Feb to 5.56% in Mar

  • Retail inflation for FY17 has consistently remained below the FY16 levels since Sep 2016, and this has helped inflation for the year to be lower at 4.52% compared to 4.91% of FY16

Wholesale inflation

  • Drop in inflation for all the component product groups during Mar 2017 helped achieve a fall in WPI inflation for the month, ending at 5.7% as against 6.55% in the previous month
  • Inflation in primary articles eased from 5% in Feb to 4.6%; during same month last year, WPI inflation in primary articles was at 3%
  • However, inflation in Food Articles increased from 2.69% to 3.12%, while that of Non-Food Articles dropped from 6.53% to 4.91% and Minerals from 31% to 23.5%
  • Inflation in crude petroleum dropped from a peak of 47.7% in Jan to 42.24% in Feb and further, sharply to 29.1% in Mar
  • Within food articles, vegetables inflation rose sharply from -8.05% in Feb to 5.7%, contributed particularly by Tomato, Cauliflower and Ladies Finger, though the prices of almost all vegetables rose month-on-month
  • In the Fuel & Power group, High Speed Diesel with the highest individual weightage of 4.67 saw inflation dropping from 33.14% to 26.24%, thus contributing to the drop in inflation for the group
  • Other products such as ATF (67.3% to 48.2%), Naphtha (51.2% to 33.6%), Light Diesel Oil (52.3% to 40.9%) and Furnace Oil also saw drop in inflation
  • WPI inflation is likely to be in the range of 5% in the coming months, but will depend much on how monsoon performs
  • However, increase in global commodity prices and below-normal monsoon are upside risks that we need to be cognisant of

Steel consumption to grow by 6.1% in 2017

  • World Steel Association has forecast that India’s domestic consumption of finished steel will grow by 6.1% in 2017 to hit 88.6Mn tonnes
  • As per the Short Range Outlook released by WSA, India’s steel demand grew by just 4.1% in 2016 to reach 83.5Mn tonnes
  • India produced 95.6Mn tonnes of steel in 2016, translating to a growth of 7.40% over 2015 production
  • Global steel demand will increase by 1.3% in 2017 as against a 1% growth in 2016, and by 0.9% in 2018
  • The top 3 steel consuming countries, China, the United States and India will retain their rankings in 2017 and 2018 as well, though the gap between India and the US is expected to come down significantly over the next two years
  • US consumption growth dipped to -4.7% in 2016, but growth is expected to pick up to 3% in 2017 and 2.9% in 2018

Abin Daya the author of 'Basics of Trade: An India Perspective' is a FEMA expert, a career transaction banker, with close to 15 years of experience in corporate and transaction banking, in India.

Sheela Mamidenna - Apr 24, 2017 12:00 IST