Inflation slows to 4.59% as food prices ease

Industrial output slips back into contraction after two months with November IIP shrinking 1.9%, NSO data show

January 12, 2021 10:57 pm | Updated 11:33 pm IST - NEW DELHI

Affordable food: Vegetable prices witnessed a deflation of 10.4% compared with 15.5% inflation in November

Affordable food: Vegetable prices witnessed a deflation of 10.4% compared with 15.5% inflation in November

India’s retail inflation decelerated appreciably to 4.59% in December, from 6.93% in November, dipping below 6% for the first time since March 2020 as food prices cooled. Other data released by the National Statistical Office (NSO) on Tuesday, however, showed that a nascent industrial recovery, which had begun in September, retreated in November as industrial output shrank 1.9%.

The lowest consumer price inflation (CPI) print in 14 months was driven by an sharp slowdown in food price inflation, which eased to 3.4% in December, from the preceding month’s 9.5% .

India’s index of industrial production (IIP) for November was dragged lower by mining and manufacturing, which both shrank, as per quick estimates. Mining output contracted 7.3% in the month, while manufacturing declined 1.7%, indicating an unwinding of inventory build-ups with the quenching of pent-up and festive demand.

Electricity production grew for the third month in a row, rising 3.5% year-on-year. The NSO also revised upwards the index for the preceding three months by incorporating more production data. As per the final data for August 2020, the IIP had shrunk 7.1% in the month, narrower than the 8% estimated earlier.

In September, industrial output had edged up 0.5% — higher than the 0.2% growth estimated earlier — after shrinking for six months. Industrial output grew 4.19% in October, higher than the 3.6% quick estimate.

“The November data once again shows that the uptick witnessed in the month of September and October was due to a combination of festive and pent-up demand and the recovery is still shallow and fragile,” said Sunil Kumar Sinha, principal economist at India Ratings & Research. “The unevenness and fragility of the current recovery is evident with only 10 out of 23 industry group showing positive growth in November,” he pointed out.

Inflation surprise

Vegetable prices witnessed a 10.4% deflation in December, compared with inflation of 15.5% inflation in November. An accompanying moderation in the inflation rates for meat and fish, eggs and pulses, helped the consumer food price index record its slowest pace of increase in 16 months at 3.4%.

Core inflation too eased marginally to 5.5% in December, helping overall inflation moderate after having remained above the central bank’s tolerance band for price gains — of plus or minus two percentage points from its medium-term target of 4% — for a prolonged period.

“While the considerable softening in the CPI in December 2020 offers welcome relief, it is unlikely to prove adequate to allow for rates to be eased in the upcoming policy review, as the headline inflation may only record a limited further decline before resuming an uptrend,” said Aditi Nayar, principal economist at ICRA.

Initial data for this month also suggest a continued plunge in vegetable prices, but point to a broad-based rise in prices of other food items, especially edible oils, Ms. Nayar observed. “Additionally, the hardening prices of crude oil, and its partial transmission into domestic retail prices, remain a concern,” she added.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.