Retail inflation surged to a four-month high in March while industrial growth slipped to a six-month low in February, according to government data released on Monday. However, the inflation rate for FY 21 reached seven years high of 6.2 per cent.
Retail inflation based on Consumer Price Index (CPI) surged to 5.52 per cent in March against 5.03 per cent in February. Industrial growth measured through the Index of Industrial Production (IIP) slipped to 3.6 per cent in February, lowest after August last year when the contraction was 7.1 per cent.
As retail inflation is inching towards the upper tolerance limit of the targeted inflation range (2-6 per cent with a headline target of 4 per cent), the Monetary Policy Committee (MPC) is likely to continue with the status quo on policy rates for some more time.
The next meeting of MPC is scheduled to take place in June, and till then, no relief on the inflation front is expected.
According to data on retail inflation prepared by National Statistical Office, the rate of food inflation rose to 4.94 per cent in March against 3.87 per cent in February. Among the food and beverage category, edible oil and fat registered inflation of nearly 25 per cent, while pulses and products saw a retail inflation rate at 13.25 per cent. Data also proved that meat and fish prices along with egg were also high while prices of vegetables declined.
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Bank chiefs advised to take steps to maintain business continuity, sharpen strategies, and raise capital to strengthen balance sheets.Aditi Nayar, Chief Economist with ICRA, said the continued sharp rise in the CPI inflation broadly tracked expectation, with a base-effect led to a jump in the food inflation and a further measured uptick in the core inflation to an unnerving 6 per cent in March 2021.
“After the uncomfortable spike seen in March 2021, we expect a temporary drop in the April 2021 CPI print to around 4 per cent, led by the base-effect related to the lockdown, as well as the decline in prices of vegetables and modest dip in retail fuel prices, before an upturn resumes over the remainder of this quarter,” she said.
With the MPC forecasting the CPI inflation to average around 5 per cent in FY2022, rate cuts appear to be ruled out unless economic activity undergoes another deep Covid-induced disruption. However, even in the latter situation, supply disruptions may cause inflation to spike, limiting the extent of the monetary policy support that may plausibly be forthcoming, she said while ruling out rate hike as of now.
Industrial Growth
Contraction in factory output can be attributed to the base effect. Devendra Kumar Pant, Chief Economist with India Ratings, said that the data trend of the past few months, therefore, reinforces the view that the uptick witnessed in the month of September-2020 and October-2020 was more due to a combination of festive and pent demand, and we are still far from witnessing a sustained recovery. “Growth pattern of primary and intermediate goods, two leading indicators of industrial production, are pointing towards a lacklustre industrial performance in short- to medium-run. This also means government and RBI will have to continue to support the demand,” he said.
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