Economy

Retail inflation rises to 2.57% in February; industrial growth dips below 2% in January

Our Bureau New Delhi | Updated on March 12, 2019

But experts see scope for rate cut early next fiscal

Retail inflation rose to a four-month high of 2.57 per cent in February but the prospects for a rate cut has brightened as the number is still below the RBI’s inflation target of 4 per cent, while industrial growth declined to below 2 per cent in January.

The Monetary Policy Committee (MPC), under the Chairmanship of the RBI Governor, is likely to meet early next month to review the monetary policy.  February being the seventh consecutive month of rate of retail inflation being lower than the RBI’s inflation target, expectations are high that the policy rate may be lowered.

The Ministry of Statistics and Programme Implementation (MOSPI) released two sets of key data on Tuesday. It said that rate of retail inflation, as represented by Consumer Price Index (CPI) for the month of February was 2.57, as against 1.97 per cent in January. The inflation rate for four basic elements of an average household — vegetables, sugar & confectionery, fruits and pulses & products  remained in the negative zone at 7.69 per cent, 6.92 per cent, 4.62 per cent and 3.82 per cent respectively.

According to DK Pant, Chief Economist at India Ratings, with inflation remaining below the RBI’s target, inflationary expectations declining and growth profile weakening, the RBI may front load its monetary easing in the beginning of next financial year. However, with capacity utilisation still being low at 74.8 per cent (in the second quarter of FY19) and  with the ensuing general elections, there is unlikely to be a spur in investment demand in the economy, he observed.

B Prasanna, Head (Global Markets Group) at ICICI Bank, said the increase in the rate of retail inflation was on the expected line. The upward movement was driven primarily by a sequential rise seen in various food groups, except in vegetables. Core inflation moved down slightly as expected, reflecting easing of input costs, pricing powers and growing slack in the economy. The earlier spikes seen in rural health and education seem to have stabilized for the moment. “On the monetary policy we expect another rate cut in the April meeting and subsequent action would be data dependent,” he said.

Industrial activities slowed

Industrial growth, represented by Index of Industrial Production (IIP) in January, declined to 1.7 per cent, from 2.6 per cent in December 2018. Although all broad-based groups registered growth in January, barring mining (3.9 per cent), growth of manufacturing and electricity remained anaemic. Electricity growth at 0.8 per cent was at 43-months low. Among use-based groups, capital goods output contracted, suggesting weak investment demand. It is only infrastructure/construction goods output, which provided support to the growth. The two lead indicators of IIP – primary goods (1.4 per cent) and intermediate goods (-3 per cent) — portray a weak industrial growth profile. “While election related expenditure may provide some support, probability of lacklustre IIP growth in the coming months is high,” Pant said.

According to Prasanna, while capital goods continue to display volatility, momentum for infrastructure and construction goods ebbed. Consumer goods lost traction in January, as forecast by lead indicators. Industrial momentum is likely to stay flat in the fourth quarter of the current fiscal, adding no incremental fillip to growth. “

Published on March 12, 2019

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