Retail inflation based on Consumer Price Index (CPI) slid further down to 4.35 per cent in September from 5.3 per cent in August, while industrial growth, reflected in the Index of Industrial Production (IIP), came down to 11.9 per cent in August from 12.11 per cent in July.

Experts feel that the inflation rate will continue to go down in October and November and it could fall below a median rate of 4 per cent. It will give some comfort to the Monetary Policy Committee (MPC) in terms of interest rate revision in December. However, there are two concerns — core growth rate (overall inflation minus volatile items such as food and fuel) and increasing prices of fuel and metal in the international market.

Data released by the Statistics Ministry show the inflation rate dropped for all vegetables by over 22 per cent while for cereals and products, it was still in the negative zone. As expected, oils and fats surged to over 34 per cent. Inflation for fuel and light category was at 13.63 per cent, showing some effect of higher prices of petrol and diesel.

The main driver

Sreejith Balasubramanian, Economist with IDFC AMC, said with the September number of 4.5 per cent, CPI has averaged 5.1 per cent in July-September period and it is in line with the RBI’s latest downward-revised forecast. The main driver of the latest print is softer food and beverage prices at 1.6 per cent year-on-year and 0.1 per cent month-on-month, while core inflation continued to be at 5.8 per cent.

“The food price trajectory will continue to remain important as some vegetable prices have reversed direction and sequentially picked up in October. Commodity price, particularly of crude oil, and its partially offsetting impact on inflation and consumption demand at a time when the economy’s aggregate demand is still below the pre-pandemic level, will also be crucial,” he said.

Rajani Sinha, Chief Economist with Knight Frank India, said CPI inflation was expected to drop in September, with the base effect kicking in. Nevertheless, it comes as a relief for policymakers, specially at a time when economic growth is just about gathering momentum. However, high core inflation and fuel inflation remain a cause for concern.

“With global economic growth gathering momentum, there could be further upward pressure on commodity prices and the central bank would be wary of that. However, there is unlikely to be any change in policy rates in the current year,” she said.

Industrial growth

Meanwhile, another high frequency indicator, industrial growth, is showing some improvement. It recorded a growth rate of 11.9 per cent in August as against (-)7.1 per cent in August 2020 and (-)1.4 per cent in August 2019. The growth of IIP in August is supported by the growth of mining at 23.6 per cent, capital goods at 20 per cent, and manufacturing at 9.7 per cent, besides others.

According to Pradeep Multani, President, PHD Chamber of Commerce and Industry, there is a need to address the high commodity prices and shortages of raw material at this juncture to support consumption and private investments in the country.

“The drivers of household consumption need to be strengthened to support the demand for consumer goods and to enhance the aggregate demand, as it will have an accelerated effect on expansion of capital investments in the country,” he said.

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