The first set of economic data in 2016 is expected to be released over the next one week. Industrial production and inflation (consumer and wholesale) are likely to portray a picture that the pain in the system continues to remain, says India Ratings and Research (Ind-Ra). Ind-Ra estimates Index of Industrial Production (IIP) for November 2015 at 3.1% and December 2015 Consumer Price Index (CPI) at 5.6% and Wholesale Price Index (WPI) at -0.9%.

Ind-Ra believes that after the strong up move in the October 2015 industrial production growth of 9.8% (highest since November 2010), industrial production growth in November 2015 is likely to decelerate to 3.1%. IIP at 3.1% will be the weakest in six months and there are a number of factors that are responsible for industrial growth slowing down. According to the eight core industries output which reflect the underlying momentum in the infrastructure sector, core sector output for November 2015 contracted by 1.3% yoy its sharpest contraction at least since the current series was introduced in April 2005.

Steel output witnessed its sharpest plunge since 2005. Electricity production growth was ‘nil’ (October 2015: 8.8%, November 2014: 9.9%), high base is pulling down the electricity production growth. Mining sector growth is affected by slower growth of coal production and negative growth of crude, petroleum and cement production. Manufacturing growth is likely to be affected by the base effect (November 2014 growth: 4.7%). Although in normal circumstances, a 4.7% growth in November 2014 should not have posed a challenge to November 2015 industrial production growth, but in the present scenario of tepid domestic and global demand conditions, it is likely to pull down November 2015 manufacturing sector growth.

Ind-Ra analysis shows that the inflation has bottomed out in August 2015. The period between September 2014 and August 2015 benefitted from a favourable base effect which provided the much needed comfort in the fight against inflation. With base effect however waning out since September 2015, both retail and wholesale inflation are inching up. The average price of the Indian crude basket in December 2015 (USD35.68/bbl) touched its lowest level since July 2004, however due to the depreciation of the Indian rupee it touched its lowest level in INR terms (INR2,376.13/bbl) since April 2009.

Based on the current global economic scenario, crude oil prices are expected to remain benign and they are likely to harden in 2HCY16. Food prices after declining are inching up mainly due to the upward spiral in prices of pulses and spices. Despite the increasing trend of overall retail inflation since September 2015, it continues to remain within the Reserve Bank of India’s comfort zone.

Ind-Ra expects December 2015 retail inflation to increase to 5.6% (CPI for November 2015: 5.4%, December 2014: 4.3%). CPI at 5.6% will be the highest since September 2014. Wholesale price deflation is likely to narrow down further and the agency expects it to come in at -0.9% in December 2015 (WPI for November 2015: -2.0%, December 2014: -0.9%). This will be the 14th consecutive month witnessing wholesale price deflation. Ind-Ra expects wholesale deflation to turn into inflation in 4QFY16.

IIP for November and CPI for December is scheduled to be released on 12 January, WPI for December is scheduled for 14 January.