Retail inflation up a tad at 3.7% in Sept; August IIP at three-month low of 4.3%
Higher food, fuel prices drive up inflation, while slowdown in manufacturing and mining impacts factory output
Retail inflation for the month of September inched up a bit, while industrial production for the month of August slowed down, two sets of Government data released separately on Friday showed.
However, the fear is that retail inflation is likely to go up in the coming months which might result in hardening of policy rate by the Monetary Policy Committee when it meets in December.
Retail inflation, as measured by the Consumer Price Index, came in at 3.77 per cent in September as against 3.69 per cent in August. The CPI inflation print is less than the targeted inflation rate of 4 per cent with (+/-) 2 per cent range. However, the rate of core inflation (overall CPI minus volatile food and fuel) slipped to 5.8 as against 6 per cent in August. Slower inflation in food prices, which make up nearly half of India's consumer price index (CPI), has so far cancelled out rises in imported goods following the weakening rupee. Food inflation rose to 0.51 percent from a year earlier, against 0.29 percent in August.
Aditi Nayar, Principal Economist at ICRA, said the mild uptick in the CPI inflation in September is in line with expectation of a sub-4 per cent print for that month. However, “the rise in crude oil prices, the sharp weakening of the rupee, and the revision in MSPs are likely to push up the headline inflation above 4 per cent in the ongoing quarter. These risks, combined with the change in stance from neutral to calibrated tightening, suggest a likely rate hike in the December policy review,” she said adding there is expectation of further rate hikes of 25-50 bps (100 basis points or bps means 1 per cent) during remaining five-and- half months of the current fiscal.
Dharmkirti Joshi, Chief Economist with Crisil, felt that with the expectation of overall healthy agricultural production, food inflation should stay contained and weigh down consumer inflation. Even if the increased Minimum Support Prices translates into commensurate increase in retail prices, consumer inflation can rise only 50 basis points. That, in turn, means “the policy rate could be on hold during the Monetary Policy Committee’s December review as well,” he said.
Meanwhile, rate of industrial production growth slowed down to three-month low of 4.3 per cent in August. Manufacturing sector output grew at 4.6 per cent in August compared to near 7 per cent in July, but 3.8 per cent in August a year ago. Similarly, mining sector contracted by 0.4 per cent in August compared to a growth of 3.53 per cent in July and 9.3 per cent in the year-ago month. The capital goods output growth decelerated to 5 per cent during the month from a 7.3 per cent expansion year ago.
Overall, in terms of industries, 16 out of 23 industry groups in the manufacturing sector have shown positive growth during August compared to the corresponding month of the previous year.
Joshi said the slowdown in manufacturing and mining weighed the Index of Industrial Production down 220 bps in August to 4.3 per cent over July. But in the coming months, manufacturing should find support from improving exports, Also, “the government’s focus on building roads, houses and rural infrastructure will provide impetus to rural demand and, by extension, to industrial production,” he said.