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Two high frequency economic indicators showed a mixed trend for the Indian economy on Tuesday. A sudden rise in food prices pushed retail inflation to a three-month high of 5.5 per cent in November, while strong growth in manufacturing helped industrial growth surge to a 16-month high of 11.7 per cent in October.
Retail inflation
Though food prices are still a concern, which could lead to another rise in retail inflation based on Consumer Price Index (CPI) next month, the good news is that core inflation (general inflation minus inflation of food and fuel) remains low and close to Reserve Bank of India’s median target of 4 per cent. This is likely to help the Monetary Policy Committee (MPC) to continue with policy rate pause. It also means no change in interest rate on deposits and interest for the moment.
During the month under review, rise in inflation on sequential basis was entirely because of food and beverages segment. In this, vegetables were the real culprit, recording an inflation rate of over 17 per cent in November against nearly 3 per cent in October. At the same time, cereals and spices persisted in double-digit for the 15th and 18th consecutive months, respectively, while pulses continued in the same vein for the sixth month in a row.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said, “We continue to monitor the key food items as production remains a worry amidst weak sowing, lower reservoir levels and continued erratic weather conditions. Overall, continued moderation in core inflation should provide respite to the RBI. It should keep them on a prolonged pause mode.”
Concerns on food prices continue as farm output is likely to be impacted. “For the full year (FY24), we expect inflation to average at 5.4 per cent. Low reservoir level in key agri producing States and slack sowing progress for pulses pose risk on inflation heading,” Swati Arora, Economist with HDFC Bank said. Further, she said core inflation is likely to decrease, due to the expected recovery in rural demand, which is likely to keep a lid on it.
Industrial Growth
Manufacturing along with other segments of industries left an impressive print based on index of industrial production (IIP). However, situation may not remain the same during the remaining part of the current fiscal ending March 31, 2024. Aditi Nayar, Chief Economist with ICRA said she expects the yearly industrial growth to slow down sharply to 2-4 per cent in November driven by the fewer number of working days amid the late onset of the festive season in 2023 vis-à-vis 2022, as well as an unfavourable base (+7.6 per cent in Nov 2022), as signalled by the sharp moderation in growth of several high frequency indicators.
Rajni Sinha, Chief Economist with Care, said the jump in IIP growth to 11.7 per cent in October from last month’s 6.2 per cent has been underpinned by the statistical effect of a favourable base. However, some improvement in the momentum is positive. “Going ahead, the inching up of inflationary pressures, lower Kharif production and uncertain prospects of Rabi output remain headwinds for the consumption scenario. Additionally, given the weak global demand outlook, the trajectory of industrial activity hinges on a durable consumption recovery,” she said.
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