The latest data on inflation, both in retail and wholesale prices as well as industrial output estimates, suggest it would be prudent to adopt caution on the outlook for the economy. October’s retail inflation based on the CPI showed a slight quickening in overall year-on-year price gains to 4.48%, from the 4.35% pace in September, spurred by a persistent acceleration in the prices of certain key food items and transport fuels. Oils and fats logged 33.5% inflation, while meat and fish and pulses and products both saw a marginal easing in the pace of annual gains from September — posting 7.1% and 5.4% increases, respectively. However, the food and beverages sub-index that accounts for over half the CPI, accelerated 2.3% month-on-month, led by vegetable prices that reared up sharply by 14.2% from September’s levels. The sequential trend in the food category is particularly disconcerting as except egg and fruits, all the 10 other items of the 12-component sub-index saw prices accelerate last month. Transport and communication, which encompasses the pump prices of petrol and diesel, logged inflation of 10.9% from the October 2020 level, lending justification to the Centre’s Deepavali-eve decision to cut the excise duty on the key fuels. With the WPI also showing price pressures intensifying at the wholesale-level last month, especially for fuel and power and manufactured products — October’s headline WPI inflation accelerated to 12.5%, from 10.7% in September — the overall outlook on inflation is still far from reassuring.
The Index of Industrial Production data from September also points to a sharp slowdown in output. While IIP growth slumped to an annual 3.1% pace, from August’s 12%, overall industrial output, of mining, manufacturing and electricity, actually shrank 2.6% on a sequential basis. While the Finance Ministry has cited monsoon rains for the slump in mining and power generation, which contracted 8.4% and 11% month-on-month, respectively, index heavyweight manufacturing too suffered a 0.5% contraction. Four of the six use-based industrial categories saw output shrink including consumer non-durables, which contracted 0.9%. The only silver lining was that consumer durables posted a healthy 6.7% jump in production from the preceding month, as white goods dealers likely stocked up ahead of the festival season. Automobile manufacturing slumped 9% from a year earlier and shrank 3.3% from August’s output levels as a global shortage of semiconductors crimped production. Automakers have reported more than 20% declines in production for October as well, as the chip scarcity coupled with high input costs abides. And given that manufacturers, who have so far sought to avoid risking the tenuous demand recovery by raising product prices, may not be able to defer increases for much longer, policymakers will have to ensure they do not drop their guard on inflation.