Industry

Data buoys: inflation cools to 4.06%, IIP rises 1%

Tear factor: The rise in onion prices and higher crude oil prices are areas of concern that need to be monitored.  

India’s retail inflation slowed to a 16-month low of 4.06% in January, helped by a sharp deceleration in food prices, while industrial output rebounded to post 1% growth in December aided by increases in electricity and manufacturing.

Inflation based on the Consumer Price Index (CPI), which was 4.59% in December, continued to decelerate after being stubbornly stuck above the central bank’s upper tolerance threshold of 6% for six months between June and November. Rural inflation eased last month to 3.23%, while urban inflation stood at 5.1%.

The moderation in consumer prices was driven by a broad-based softening in food inflation, with the Consumer Food Price Index rising just 1.89% in January, appreciably slower than December’s 3.4% pace.

However, core inflation, excluding food and fuel prices, was estimated to be at about 5.7% and hovering close to the same level as in December. Economists foresee a resurgence in overall inflation from February as the benefit of a favourable base effect wears off.

The sequential momentum in core inflation has risen, following the highest ever WPI-core momentum reading in December, rising mobility indicators and falling COVID-19 cases, said Sreejith Balasubramanian, economist at IDFC AMC.

“Going forward, the base effect which helped recent lower prints, will wane in February and March and the magnitude of disinflation in vegetables would also most likely ease, while the price movement in pulses and vegetable oils needs to be watched closely,” he added.

The National Statistical Office’s release on the Index of Industrial Production (IIP) for December provided some cheer as it revealed a recovery in output following a 2.1% decline in November and was stronger than the 0.4% growth seen in December 2019. The rebound was led by a 5.1% jump in electricity production, which rose for the fourth month in a row, and a 1.6% increase in manufacturing output.

The NSO also revised upwards the industrial output number for September, to growth of 1% from an earlier estimate of 0.5%.

“There is some comfort in both the IIP growth number and CPI inflation for December and January, respectively,” said Madan Sabnavis, chief economist at CARE Ratings, terming the 1% industrial output growth a ‘gentle surprise’ from its forecast of 0.1% growth.

“Our forecast of 0.1% was against the backdrop of negative growth in the core industries, but the situation has been buffered by an impressive performance of consumer goods — both durable and non-durable — with the base effect providing an upward bias,” he said, adding that increases in electronics, auto and capital goods output had also helped.

The December data once again reinforced the view that the uptick witnessed in September and October was due to a combination of festive and pent up demand and the recovery was still fragile, opined Sunil Kumar Sinha, principal economist at India Ratings. “However, the positive aspect of the December 2020 factory output is that it has now crossed the pre-COVID level, that is the level of output witnessed in February 2020,” he added.

Aditi Nayar, principal economist at ICRA, said that food inflation had helped soften retail inflation, but many of the non-food categories had recorded a quickening in inflation in January.

“Food prices have displayed a mixed trend so far in February 2021. The rise in onion prices, as well as higher crude oil prices and their transmission into retail fuel prices are areas of concern that need to be monitored. With inflation expected to resume an uptrend in February-March 2021, we do not think January’s inflation numbers create room for an imminent rate cut,” she said.

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Printable version | Apr 18, 2021 7:09:07 PM | https://www.thehindu.com/business/Industry/data-buoys-inflation-cools-to-406-iip-rises-1/article33824690.ece

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