Retail inflation hits 3-month low of 5.1% in January, IIP rises 3.8% in December | Economy and Policy News

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Rajni Sinha, chief economist at CARE Ratings, said the headline inflation rate, which had been rising over the past two months, gradually reversed in January due to gradual easing, especially in food items. File photo: Bloomberg

Inflation in retail prices in January was reported to be lower compared to the same month last year, while the Index of Industrial Production (IIP) was up year-on-year (YoY) in December.

Led by broad-based moderation and favorable base effect, the retail inflation rate based on the Consumer Price Index (CPI) declined to a three-month low of 5.10 per cent year-on-year in the first month of calendar year 2024.

In December it was 5.69 percent whereas in January last year it was 6.52 percent.

IIP growth increased slightly to 3.8 percent in December from 2.4 percent in November due to improvement in the performance of the manufacturing sector (3.9 percent).

Meanwhile, growth in mining (5.1 percent) and electricity (1.2 percent) declined during the month.

In December 2022, IIP had registered a growth of 5.1 percent compared to December 2021.

According to data released by the National Statistical Office (NSO) on Monday, the inflation rate declined due to softening of prices of cereals (7.83 per cent), milk (4.64 per cent) and fruits (8.65 per cent).

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However, despite the moderation, prices of vegetables (27.03 per cent), pulses (19.54 per cent), and spices (16.36 per cent) continued to face double-digit inflation during the month.

Meanwhile, prices of protein-rich items like meat (1.19 per cent) and eggs (5.6 per cent) witnessed a marginal rise.

Rajni Sinha, chief economist at CARE Ratings, said the headline inflation rate, which had been rising over the past two months, gradually reversed in January due to gradual easing, especially in food items.

“The ongoing deflation in fuel and light categories continues to support inflation prints. Core inflation remained subdued and declined further, remaining below the 4 per cent threshold for two consecutive months, mainly due to subdued consumption demand and softening global commodity prices. “However, higher inflation in specific food categories, including cereals, pulses and spices, potentially poses a risk of broadening price pressures and undermining inflation expectations,” she said.

Expressing similar views, Aditi Nair, chief economist at ICRA Ratings, said rabi sowing has matched last year’s levels, but reservoir storage in most areas remains below a year ago, leading to The outlook for the Rabi crop has turned cautious.

Last week, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5 per cent for the sixth consecutive time and Governor Shaktikanta Das retained the inflation forecast for 2023-24 at 5.4 per cent. . For the current quarter, the estimate was reduced to 5 per cent from 5.2 per cent earlier.

“For FY2015, inflation projection is kept unchanged at 4.5 per cent. The trajectory of inflation going forward will be determined by the outlook for food inflation, about which there is considerable uncertainty. Adverse weather events remain the primary risk impacting the Rabi crop. Rising geopolitical tensions are disrupting supply chains and destabilizing prices of key commodities, especially crude oil, the governor said in a statement.

Only 11 out of 23 manufacturing industries in the IIP saw contraction in December. Even in the use-based segment, only primary goods (4.6 per cent) and intermediate goods (3.4 per cent) recorded a sequential decline in December, while other categories such as infrastructure goods (4.1 per cent), capital goods (3.2 per cent), consumer Durable goods (4.8 per cent), and consumer non-durable goods (2.1 per cent) witnessed growth in the month, indicating a revival in both urban and rural demand.

Bank of Baroda Chief Economist Madan Sabnavis said the cumulative growth in IIP in the first three quarters of this financial year has been recorded at 6.1 per cent, which bodes well for the performance of the manufacturing sector in terms of GDP.

“Sustaining such growth is essential to ensure that the momentum is sustained and this will be seen over the next three months,” he said.

first published: February 12 2024 | 9:38 pm Is

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