Impact Of Inflation And IIP Numbers On The Market

Impact Of Inflation And IIP Numbers On The Market

Inflation happens when there is a rise in the price of services and goods. When there is inflation it erodes the purchasing power of money. So if the price of goods and services rises then this is caused because of inflation.

Inflation is apart of the economy but when the inflation level is very high then this leads to uneasiness in the economy. When the inflation rate is high then this is bad for the market. The government then interferes to manage the level of inflation. The rate of inflation is measured using an index. This index is used to measure inflation. If the index value is going up, then this means that the inflation is rising. If the index is falling down then inflation is easing.

The inflation is further divided into two kinds.

Wholesale price index (WPI)

The wholesale price index is the price movement at the wholesale price level. The WPI measures the increase or the decrease in the price when the goods are sold between organizations and not to consumers. The WPI is a good tool to calculate the rate of inflation. The inflation that is measured here is at the organization level and this may not necessarily be a true representation of inflation at the lower level.

The central bank aims to balance the interest rate and inflation. When there is a low-interest rate then it causes the inflation to increase. High-interest rates cause the inflation to decrease.

Consumer price index (CPI)

The CPI captures the effect of the price changes that happen at the consumer or retail level. The CPI number is an important tool and this is what actually matters. The CPI is calculated by classifying the consumption of products across many sub-categories as well as across the rural and the urban regions. Each of the categories is formed into an index and thus when the financial amount of CPI is calculated then this is a representation of many of the indices. The CPI is a very detailed figure and is a very important metric that is used in economics.

Index of industrial production or IIP

TheIIP or the index of industrial production is a representation of how the industries are performing in a country. The IIP numbers are released every month and it measures the industrial sector production. This is measured against a fixed reference value which is the figure of a base year.

The different industries, read the source,  submit their data of production and this data is collated to release the IIP number. When the value of the IIP is going up, then this means that the economy is doing good. When the IIP figures are decreasing then this is negative for the economy.

So an upward move in industrial production is beneficial for the economy. A downward move is bad for the economy. When the IIP figures are very low then the central bank is forced to cut interest rates.