CPI, PMI and Diffusion Index

CPI, PMI and Diffusion Index

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April 22, 2023

The Reserve Bank of India (RBI) stated in its monthly bulletin on Friday that there is a need to analyse the implications of Monetary Policy initiatives taken thus far on overall economic activity. The central bank agreed to temporarily halt repo rate rises in its April Monetary Policy. This comes after it boosted the rate by 250 basis points since May 2022 in an effort to keep inflation under control. The decision was influenced by the fact that headline CPI inflation fell to 5.7% in March 2023 from 7.8% in April 2022. Inflation is anticipated to fall further to 5.2% in January-March 2024.

CPI or, the Consumer Price Index (CPI) inflation is defined as the change in the prices of an assortment of services and goods frequently purchased by certain categories of households.

RBI has been directed by the Union government to keep the retail inflation at 4%, with a 2% cushion on each side. In India, aggregate demand is strong, aided by resurgence in contact-intensive services. The report stated that expectations of a bountiful Rabi harvest, the fiscal push on infrastructure, and the return of corporate investment in specific sectors augur well for the economy. Furthermore, investment activity in India is brisk as a result of robust composite purchasing managers indices. In comparison to other countries, India has the highest PMI. This is attributable to the fiscal emphasis on infrastructure expenditure, as well as the resurgence of corporate investment in some critical sectors.

The PMI or, the Purchasing Managers' Index measures the existing trend of economic developments within the service and manufacturing sectors. It consists of a Diffusion Index, which summarises whether buying managers see market conditions to be increasing, stable, or decreasing.

The Diffusion Index calculates how many stocks advance within an index on a daily basis. In other words, it counts how many stocks rose since the previous session's closing. The tick Index is a shorter-term breadth indicator that tracks how many stocks increased vs decreased.

Despite significant problems, the Corporate Sector is in good shape. This might spark a resurgence in the corporate capital spending cycle in 2023-24 (April-March).

Source - The Financial Express