Retail inflation eases to 4.4% in February; IIP grows 7.5% in January

In a sustained improvement in economic conditions, retail inflation in February eased as food prices softened, while industrial production soared in January.

According to official data released on Monday, consumer price index (CPI) based inflation eased to a four-month low of 4.44 per cent in February from 5.07 per cent in January.

Meanwhile, the Index of Industrial Production rose 7.5 per cent in January, led by robust expansion in the manufacturing sector.

The data come soon after the second advance estimate of GDP, which revised upwards the growth prospects for the fiscal to 6.6 per cent from the previous projection of 6.5 per cent.

Though it will give comfort to the Centre that had been under pressure after demonetisation, implementation of Goods and Services Tax and the Punjab National Bank scam, experts expect the Reserve Bank of India to maintain a status quo on rates. The next meeting of the Monetary Policy Committee is scheduled on April 4 and 5.

“The sharp dip in retail inflation in February has reinforced our expectation that the MPC would keep the repo rate unchanged in the upcoming policy review in April, which may prompt a further easing of bond yields in the immediate term,” said Aditi Nayar, Principal Economist, ICRA, warning that inflation may see a spurt in the coming months.

Tushar Arora, Senior Economist, HDFC Bank, said, “Both the IIP and CPI numbers are on the positive side... The economy is gaining traction and recovery seems to be taking a V-shaped pattern although the demand seems to be only from the urban side. A 25 basis point rate hike is expected only in the last quarter of the fiscal 2018-19.”

Before this, factory output grew at a sharpest pace in November 2017 at 8.8 per cent. It then grew by 7.06 per cent in December and by 3.5 per cent in January 2017.

But, on a cumulative basis, the IIP expanded by 4.1 per cent between April and January 2017-18, which was lower than the 5 per cent growth in the same period a year ago.

In January, manufacturing grew by a robust 8.7 per cent, followed by 7.6 per cent increase in electricity generation. However, mining grew by a mere 0.1 per cent in the month.

Amongst use-based industries, sectors including capital goods (14.6 per cent), consumer durables (8 per cent) and non-durables (10.5 per cent) showed healthy expansion in January, in an indication that both investments by companies and retail demand are coming back on track.

Retail inflation

In February, consumer food price index softened to 3.26 per cent as against 4.7 per cent in January. It was much lower at 2.01 per cent in February 2017. Retail prices of pulses, sugar and spices contracted in February.

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