New Delhi: Data for Index of Industrial Production (IIP) for November and retail inflation for December, slated to be released on Thursday, will be closely watched as it may provide a clearer picture on the impact of demonetisation.

Economists said it will be difficult to forecast the IIP numbers due to demonetisation.

“The IIP numbers are hard to pin down. Although the consumption demand for manufacturing goods went down in the month of November, but still some demand did continue in November as compared to December. Hence, IIP for December would be weaker than in November," said D.K. Joshi, chief economist at Crisil.

IIP numbers were in the negative territory since July, but turned positive in September. They again fell in October by 1.9% against expectation of a pick-up.

According to HSBC’s global research report dated 9 January, the December CPI (Consumer Price Index) and WPI (Wholesale Price Index) inflation numbers will fall on a year-on-year (y-o-y) basis, primarily on account of still softening food prices.

“CPI inflation will fall further to 3.3% y-o-y versus 3.6% in November, as falling food prices more than offset oil price increases. High frequency data indicates a sharp decline in vegetable prices in December, in large part due to the post-demonetisation disruptions. The December print is likely to make RBI’s (Reserve Bank of India) 5% March CPI target secure," said the report.

Madan Sabnavis, chief economist at Care Ratings, said CPI and WPI will converge in the month of December and would be around 3.6%. “The CPI numbers would fall on account of the good supplies of the food products and fall in the prices of horticulture products which will make overall price levels fall. The WPI numbers would rise on account of increase in global demand of metals and crude oil," he added.

Trade data for December which is due next week will also give a sense about the impact of demonetisation. The trade deficit is expected to narrow down on the back of reports that gold demand has fallen meaningfully.

According to HSBC’s global research report quoted above, following a spike in November, gold demand over the month of December fell sharply due to the ongoing cash crunch. “There are expectations of some sequential moderation in non-oil-non-gold import demand (in December) after two months of rise, driving the monthly trade deficit closer to $10 billion (in December) vis-à-vis $13 billion in November which was the highest in the year," the report stated.

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