INDIA’S INDUSTRIAL output jumped to a 14-month high of 10.3 per cent in August, primarily driven by a base effect along with an uptick in manufacturing, mining, capital goods and consumer durables.
Inflation rate for consumers, or retail inflation, also eased to a three-month low of 5.02 per cent in September with a sharp moderation in food prices, especially of vegetables, and the impact of the LPG price cut, data released by the National Statistical Office (NSO) on Thursday showed.
Factory output gained on the back of a 9.3 per cent increase in manufacturing, which accounts for 77.6 per cent of the weight of the IIP (Index of Industrial Production). Manufacturing output had grown by 5 per cent in July and had contracted by 0.5 per cent in August 2022. In absolute terms, it improved to 143.5 in August from 141.8 in July and 131.3 in the year-ago period.
As per the IIP data, seven of the 23 sectors in manufacturing registered a contraction in August, with furniture, apparel, and computer and electronics among the significant non-performers. Among the performing sectors, fabricated metal products, electrical equipment and basic metals fared better.
“Garments and chemicals witnessed negative growth. This can be attributed to lower growth in exports as these two are export dependent. The electronics industry also witnessed negative growth, which again can be linked to existing high stocks and lower export demand,” Madan Sabnavis, Chief Economist, Bank of Baroda said.
In terms of the use-based industries, consumer durables output returned to positive territory for the second time this fiscal with 5.7 per cent growth in August, reflecting a pickup in consumption demand. However, it came on the back of a 4.4 per cent contraction in consumer durables output in the year-ago period. Primary, infrastructure/ construction, and capital goods recorded double-digit growth rates in August at 12.4 per cent, 14.9 per cent and 12.6 per cent, respectively.
“We need to see if such buoyancy gets reflected in the sales of India Inc in their Q2 results. This high growth in IIP corroborates with the buoyant PMIs and GST collections. The next two months should ideally see sustained growth if rural demand revives – this has been a lacuna so far,” Sabnavis said.
On the retail inflation front, Consumer Food Price Index (CFPI) recorded an inflation rate of 6.56 per cent in September as against 9.94 per cent in August and 8.60 per cent in September last year. Food and beverages, which account for 45.86 per cent of the overall consumer price index (CPI), recorded an inflation rate of 6.30 per cent in September as against 9.19 per cent in August. Fuel and light segment recorded deflation of 0.11 per cent in September compared with 4.31 per cent inflation rate in the previous month, reflecting the impact of the LPG price cut in August. Core inflation — non-food, non-fuel segment — eased to 4.7 per cent in September, the lowest since February 2020, as per ICRA estimates.
The inflation print, however, continued to remain above the upper limit of the 4+/- 2 per cent band of Reserve Bank of India’s medium-term inflation target, marking nearly four years of inflation rate staying above 4 per cent.
Vegetables inflation provided some relief by moderating to 3.39 per cent in September from 26.14 per cent in August, while cereals and products inflation also eased to 10.95 per cent in September from 11.85 per cent in August. The retail inflation rate in September was 16.38 per cent in case of pulses and products, 6.89 per cent for milk and products, 23.06 per cent for spices, 4.96 per cent for prepared meals, snacks, sweets etc., and (-)14.04 per cent for oils and fats.
The overall retail inflation rate in September was higher at 5.33 per cent in rural areas, and 4.65 per cent in urban areas. Food inflation for rural areas was 6.65 per cent in September, and 6.35 per cent in urban areas. Data for 22 major states/ UTs shared by NSO showed 13 states recorded higher-than-average retail inflation rate in September, with the highest inflation rate seen in Rajasthan (6.53 per cent), followed by Haryana (6.49 per cent each), Karnataka (6.0 per cent), Telangana (5.97 per cent), and Odisha (5.87 per cent).
Economists sounded caution about the inflation outlook for the coming months. “Notwithstanding the favourable headline inflation print, food inflation remains elevated. Moreover, the uneven monsoon, lag in sowing of crucial kharif crops such as pulses and oilseeds and modest reservoir levels do not augur well for the outlook for food inflation. In our view, perceived inflation during the festive period may have a larger impact on sentiment this year, as compared to 2022, when festivities were prioritised after two years of Covid,” Aditi Nayar, Chief Economist, Head (Research and Outreach), ICRA Ltd, said.
Note of caution
While retail inflation is below the RBI’s upper limit of 6% after a gap of two months, headline inflation remains higher than its stated monetary policy target of 4%. The core inflation — or non-food, non-fuel inflation — has, however, eased to the lowest in 3.5 years.
In its latest monetary policy review last week, the RBI had kept the key repo rate unchanged at 6.5 per cent on concerns over high inflation. RBI Governor Shaktikanta Das had said the central bank may rethink on cutting the repo rate only when it sees CPI inflation at around 4 per cent, or below, on a durable basis. As per the RBI projection, inflation is expected to be at 5.4 per cent in Q1, 6.4 per cent in Q2, 5.6 per cent in Q3, and 5.2 per cent in Q4.
Near-term risks to the inflation outlook have worsened due to volatility in global crude oil prices and the RBI is likely to continue to manage inflationary pressures through its liquidity measures, CareEdge said in a note.
“Our projections suggest that the headline CPI inflation will remain volatile in a wide range until June 2024, with the outlook for food inflation remaining murky and continuing volatility in crude oil prices. Nevertheless, further monetary tightening is not warranted in the near term, amid the continued lagged transmission of past rate hikes through the economy,” Nayar said.
