India Ratings and Research (Ind-Ra) says a reversal in the base effect will lead to lower deflation in the wholesale price index (WPI) and a rise in the consumer price index (CPI) in September. Industrial production activity, however, is unlikely to show a pick-up in August believes Ind-Ra.
Ind-Ra further says as we move into the second half of FY16, there is considerable palpitation with respect to the health of the economy.
It is still unclear whether the Indian economy is back on a sustainable growth path or if more pain persists in the system. A glance at the high frequency data indicates a mixed outcome.
While the story relating to inflation so far has been encouraging - WPI which is wholesale prices have been witnessing deflation since November 2014 and CPI based retail inflation has been less than 4 per cent in July and August 2015. CPI inflation currently is way below the Reserve Bank of India's revised target of 5.8 per cent by January 2016. A lot of the decline in prices has been due to the dramatic fall in global commodity prices including crude.