Monetary policy preview, Resilient domestic data, falling Corporate tax collections, 50% Inflation and more...
This Week In Data #29
In this edition of This Week In Data, we cover:
What the RBI may do next week
Early look into high frequency data for August
Uptick in NREGA demand
Decline in corporate tax collections
Softening US labour market data
Euro area GDP growth
50% Inflation in Turkiye!
The coming week (August 10th) will see the MPC make its rate decision. Since the last rate decision, inflation has seen a sharper-than-expected reversal in its trajectory. June CPI ticked up to 4.8% YoY from 4.3% in May due to a sharp sequential uptick in food and specifically Vegetable prices. And this uptick in Vegetable prices has continued through July and into the first few days of August. It looks likely to us that July CPI could be back above 6% in July as against the MPC’s projection of an average 5.2% for the July-Sep quarter. Inflation, at least in the short term, is thus likely to be above the MPC’s trajectory.
So what will the MPC do? Most likely, it will continue the status quo which is to maintain rates like it has done in the last two policy meets. However, what it will also mean is that the RBI’s pause is likely to last longer than markets have initially estimated. It's quite likely that the RBI remains on pause for another 2-3 quarters. And a sign of markets realizing this is the recent increase in long-bond yields - the 10yr bond yield has moved up 15bps since early July.
A key input for the RBI in its policy making is going to be growth. And this past week we got the first set of data for July. And the data has generally been mixed. Power generation grew almost 8% YoY in July, as against 4% in June and close to 0% in the three months preceding that. Cargo traffic at the major ports grew 4% YoY in July. This is higher than the 0.4% growth in June and is the highest growth since February this year. GST collections grew just under 12% YoY in July, broadly the same pace as in the previous few months.
2W Sales grew 8% YoY in July, broadly the same growth as in the previous couple of months. Tractor sales rose over 20%, the second consecutive month of strong growth (in June they had grown over 30%). Car sales growth, however, decelerated to 3%, half the growth rate of the preceding couple of months.
NREGA data was weak. The demand for work under NREGA increased 15% YoY in July. Demand for work had increased in June as well but the increase was a modest 2%. This increase in demand for work comes after 21 consecutive months of decline. More importantly, demand for work under NREGA in July was 20% above the pre-pandemic level for the third consecutive month. During the March quarter this year, this had averaged just 8% above the pre-pandemic levels.
So, more people are now demanding work under NREGA which is possibly suggesting a weak labour market in rural areas. And to some extent ties in with some of the weak earnings reported by the consumer companies.
Another disconcerting data was the weak corporate tax collections. June was the third consecutive and the fifth month in the last six that corporate tax collections have declined. The decline in June was modest (0.4%) but June is when the first advance tax instalment is due and thus a large part of corporate taxes paid in June reflects an assessment of the full-year tax liability. And in contrast to corporate taxes which declined 14% during the June quarter, personal income tax collections have remained healthy - 11% YoY growth during the June quarter.
Alright, shifting landscape. A fair set of global data also got released last week. US non-farm payrolls increased by 187k in July. This was lower than the consensus estimate of a ~200k increase. More importantly, data for the prior two months was revised downwards to show a decrease of ~50k jobs compared to earlier reported data. So the labour market seems to be softening but gradually making soft-landing still the base case.
Eurozone reported 0.3% QoQ growth in real GDP for the June quarter after a 0% growth (upwardly revised) in the previous quarter. The provisional Euro area CPI for July printed at 5.3% YoY in July from 5.5% in June. South Korea and Indonesia also reported a moderation in inflation.
But Turkey saw inflation accelerate to 48% YoY in July from 38% in June. That’s right, prices in Turkey rose almost 50% in July this year compared to July last year. And the current inflation is lower than what it was a year ago – in July last year, CPI had risen almost 80% YoY. The Turkish Lira has depreciated by 25% in just the last 3 months and over the past two years, it has depreciated by almost 200%. Imagine the Indian rupee crossing 200 versus the dollar in two years. Yikes!
And on that note, we call it stumps. Have a great weekend.